Proposed Rules for Implementing the Whistleblower Provisions of Section 21F of the Securities Exchange Act of 1934
The Commission is proposing rules and forms to implement Section 21F of the Securities Exchange Act of 1934 (“Exchange Act”) entitled “Securities Whistleblower Incentives and Protection” and seeking comment thereon. The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010 (“Dodd-Frank”), established a whistleblower program that requires the Commission to 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. Dodd-Frank also prohibits retaliation by employers against individuals that provide the Commission with information about potential securities violations.
Proposed Rules for Implementing the Whistleblower Provisions of Section 21F of the Securities Exchange Act
3 actions from November 17th, 2010 to June 2011
November 17th, 2010
December 17th, 2010
- NPRM Comment Period End
- Final Action
Table of Contents Back to Top
- Electronic Comments
- Paper Comments
- FOR FURTHER INFORMATION CONTACT:
- SUPPLEMENTARY INFORMATION:
- I. Background
- II. Description of the Proposed Rules
- A. Proposed Rule 21F-1—General
- B. Proposed Rule 21F-2—Definition of a Whistleblower
- C. Proposed Rule 21F-3—Payment of Award
- D. Proposed Rule 21F-4—Other Definitions
- E. Proposed Rule 21F-5—Amount of Award
- F. Proposed Rule 21F-6—Criteria for Determining Amount of Award
- G. Proposed Rule 21F-7—Confidentiality of Submissions
- H. Proposed Rule 21F-8—Eligibility
- I. Proposed Rule 21F-9—Procedures for Submitting Original Information
- 1. Form TCR and Instructions
- 2. Form WB-DEC and Instructions
- 3. Perfecting Whistleblower Status for Submissions Made Before Effectiveness of the Rules
- J. Proposed Rule 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
- K. Proposed Rule 21F-11—Procedures for Determining Awards Based Upon a Related Action
- L. Proposed Rule 21F-12—Appeals
- M. Proposed Rule 21F-13—Procedures Applicable to Payment of Awards
- N. Proposed Rule 21F-14—No Amnesty
- O. Proposed Rule 21F-15—Awards to Whistleblowers Who Engage in Culpable Conduct
- P. Proposed Rule 21F-16—Staff Communications With Whistleblowers
- III. General Request for Comment
- IV. Paperwork Reduction Act
- A. Summary of Collection of Information
- B. Proposed Use of Information
- C. Respondents
- D. Total Annual Reporting and Recordkeeping Burden
- i. Proposed Form TCR
- ii. Proposed Form WB-DEC
- iii. Proposed Form WB-APP
- iv. Involvement and Cost of Attorneys
- E. Mandatory Collection of Information
- F. Confidentiality
- V. Cost-Benefit Analysis
- A. Introduction
- B. Benefits
- C. Costs
- VI. Consideration of Burden on Competition and Promotion of Competition and Capital Formation
- VII. Small Business Regulatory Enforcement Fairness Act
- VIII. Regulatory Flexibility Act Certification
- IX. Statutory Authority
- List of Subjects in 17 CFR Parts 240 and 249
- Text of the Proposed Rules
- PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934
- PART 249—FORMS, SECURITIES EXCHANGE ACT OF 1934
- Subpart S—Whistleblower Forms
DATES: Back to Top
Comments should be submitted on or before December 17, 2010.
ADDRESSES: Back to Top
Comments may be submitted by any of the following methods:
- Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed); or
- Send an e-mail to email@example.com. Please include File Number S7-33-10 on the subject line; or
- Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.
- Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number S7-33-10. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments are also available for Web site 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 a.m. and 3 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Back to Top
In the Division of Enforcement: Sarit Klein (202) 551-4577. In the Office of the General Counsel: Brian A. Ochs (202) 551-5067, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549.
SUPPLEMENTARY INFORMATION: Back to Top
I. Background Back to Top
Section 922 of Dodd-Frank added new Section 21F to the Exchange Act, entitled “Securities Whistleblower Incentives and Protection.”  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 a successful enforcement of an action brought by the Commission that results in monetary sanctions exceeding $1,000,000, and of certain related actions.
We are proposing Regulation 21F to implement Section 21F of the Exchange Act. As described in detail below, the rules contained in proposed Regulation 21F define certain terms critical to the operation of the Whistleblower Program, outline the procedures for applying for awards and the Commission's procedures for making decisions on claims, and generally explain the scope of the whistleblower program to the public and to potential whistleblowers. In this proposal, we have taken several steps to address Congress's suggestion that the Commission's whistleblower rules be clearly defined and user-friendly.  First, to the extent possible, we have tried to adopt a plain English approach in writing the rules contained in Regulation 21F. Second, Regulation 21F as proposed would provide a complete and self-contained set of rules relating to the whistleblower program. This means that in some places, we have proposed rules within the Regulation that largely restate key provisions of the statute. Although we recognize that this approach leads to some duplication between the statue and the rules, we believe that overall it will assist potential whistleblowers and add clarity, by providing in one place all the relevant provisions applicable to whistleblower claims.
In fashioning these proposed rules, the Commission has considered and weighed a number of potentially competing interests that are presented in implementing the statute. Among them was the potential for the monetary incentives provided to whistleblowers by Section 21F of the Exchange Act to reduce the effectiveness of a company's existing compliance, legal, audit and similar internal processes for investigating and responding to potential violations of the Federal securities laws. With this possible tension in mind, we have included provisions in the proposed rules intended not to discourage whistleblowers who work for companies that have robust compliance programs to first report the violation to appropriate company personnel, while at the same time preserving the whistleblower's status as an original source of the information and eligibility for an award. At the same time, the proposed rules would not prohibit a whistleblower in a compliance function from reporting information to the Commission where the company did not provide the information to the Commission within a reasonable time or acted in bad faith.
Another important policy issue raised by the statute is the potential for the monetary incentives provided by Section 21F to invite submissions from attorneys, independent auditors, and compliance personnel who may attempt to use information they obtain through their positions to make whistleblower claims. This exclusion focuses on those groups with established professional obligations that play a critical role in achieving compliance with the Federal securities laws. Our proposed rules include certain exclusions for these professionals and others under the definition of “independent knowledge,” and we seek comment on whether the proposed exclusions are appropriate and whether they should be extended to other types of privileged communications or other types of professionals who frequently have access to confidential client information.
Finally, we have attempted to maximize the submission of high-quality tips and to enhance the utility of the information reported to the Commission. More frequent reporting of high-quality information promotes greater deterrence by enhancing the efficiency and effectiveness of the Commission's enforcement program. To achieve this goal, the proposed rules would impose certain procedural requirements designed to deter false submissions, including a requirement that the information be submitted under penalty of perjury, and requiring an anonymous whistleblower to be represented by counsel who must certify to the Commission that he or she has verified the whistleblower's identity.
II. Description of the Proposed Rules Back to Top
A. Proposed Rule 21F-1—General
Proposed Rule 21F-1 provides a general, plain English description of Section 21F of the Exchange Act. It sets forth the purposes of the rules and states that the Commission's Whistleblower Office administers the whistleblower program. In addition, the proposed rule states that, unless expressly provided for in the rules, no person is authorized to make any offer or promise, or otherwise to bind the Commission with respect to the payment of an award or the amount thereof.
B. Proposed Rule 21F-2—Definition of a Whistleblower
The term “whistleblower” is defined in Section 21F(a)(6) of the Exchange Act.  Consistent with this language, Proposed Rule 21F-2(a) would define a whistleblower as an individual who, alone or jointly with others, provides information to the Commission relating to a potential violation of the securities laws. A whistleblower must be a natural person; a company or another entity is not eligible to receive a whistleblower award. This definition tracks the statutory definition of a “whistleblower,” except that the proposed rule uses the term “potential violation.” Because the statute requires the Commission to afford confidential treatment to information “which could reasonably be expected to reveal the identity of a whistleblower,”  it is important to be able to determine whether a person is a “whistleblower” at the time he or she submits information to the Commission. If the term “whistleblower” were defined to include only individuals who provide the Commission with information about actual, proven securities violations, then either the Commission would be required to determine at the time information is submitted whether the alleged conduct constitutes a violation of the securities laws, or the status of the person as a “whistleblower” would be unknown. We do not believe that this is the intended result.
In addition, use of the term “potential violation” makes clear that the whistleblower anti-retaliation protections set forth in Section 21F(h)(1) of the Exchange Act do not depend on an ultimate adjudication, finding or conclusion that conduct identified by the whistleblower constituted a violation of the securities laws. As noted in the Senate Report accompanying the legislation, “[t]he Whistleblower Program aims to motivate those with inside knowledge to come forward and assist the Government;”  affording broad anti-retaliation protections to whistleblowers furthers this legislative purpose.
Paragraph (b) of Proposed Rule 21F-2 would further make clear that the anti-retaliation protections set forth in Section 21F(h)(1) of the Exchange Act apply irrespective of whether a whistleblower satisfies all the procedures and conditions to qualify for an award under the Commission's whistleblower program. We believe the statute extends the protections against employment retaliation in Section 21F(h)(1) to any individual who provides information to the Commission about potential violations of the securities laws regardless of whether the whistleblower fails to satisfy all of the requirements for award consideration set forth in the Commission's rules.
Proposed Rule 21F-2(c) makes clear, however, that, in order to be eligible to be considered for an award, a whistleblower must submit original information to the Commission in accordance with all the procedures and conditions described in Proposed Rules 21F-4, 21F-8, and 21F-9.
Request for Comment:
1. In other provisions of these Proposed Rules—e.g., Proposed Rule 21F-15—we propose that whistleblowers not be paid awards based on monetary sanctions arising from their own misconduct, based on the notion that the statue is not intended to reward persons for blowing the whistle on their own misconduct. Consistent with this approach, should we define the term “whistleblower” to expressly state that it is an individual who provides information about potential violations of the securities laws “by another person”?
C. Proposed Rule 21F-3—Payment of Award
Proposed Rule 21F-3 summarizes the general requirements for the payment of awards set forth in Section 21F(b)(1) of the Exchange Act.  As set forth in the statute, paragraph (a) states that, subject to the eligibility requirements in the Regulations, the Commission will pay an award or awards to one or more whistleblowers who voluntarily provide the Commission with original information that leads to the successful enforcement by the Commission of a Federal court or administrative action in which the Commission obtains monetary sanctions totaling more than $1,000,000. Paragraph (b) of this proposed rule describes the circumstances under which the Commission will also pay an award to the whistleblower based upon monetary sanctions that are collected from a “related action.” Payment based on the “related action” will occur if the whistleblower's original information led the Commission to obtain monetary sanctions totaling more than $1,000,000, the related action is based upon the same original information that led to the successful enforcement of the Commission action, and the related action is brought by the Attorney General of the United States, an appropriate regulatory agency, a self-regulatory organization, or a state attorney general in a criminal case.
Paragraph (c) of Proposed Rule 21F-3 explains that the Commission must determine whether the original information that the whistleblower gave to the Commission also led to the successful enforcement of a related action using the same criteria used to evaluate awards for Commission actions. To help make this determination, the Commission may seek confirmation of the relevant facts regarding the whistleblower's assistance from the authority that brought the related action. However, the proposed rule states that the Commission will deny an award to a whistleblower if the Commission determines that the criteria for an award are not satisfied or if the Commission is unable to obtain sufficient and reliable information about the related action.
Paragraph (d) provides that the Commission will not make an award in a related action if an award already has been granted to the whistleblower by the Commodity Futures Trading Commission (“CFTC”) for that same action pursuant to its whistleblower award program under section 23 of the Commodity Exchange Act.  Rule 21F-3(d) also provides that, if the CFTC has previously denied an award in a related action, the whistleblower will be collaterally estopped from relitigating any issues before the Commission that were necessary to the CFTC's denial.
This provision serves two purposes. First, it would ensure that a whistleblower will not obtain a double recovery on the same related action. For example, if the CFTC makes an award of 10 percent to 30 percent on a criminal action brought by the U.S. Department of Justice, the whistleblower would be precluded from obtaining a second recovery of 10 percent to 30 percent from the SEC on the same action. Any other reading of the interplay of the SEC and CFTC whistleblower award provisions—which were both established by Dodd-Frank and which are substantially identical in their substantive terms—would produce the highly anomalous result of allowing the whistleblower to effectively receive a 20 percent minimum to 60 percent maximum recovery on the same related action. The SEC and CFTC whistleblower provisions, however, embody a clear Congressional determination that a whistleblower award on a successful action should lie within the 10 percent to 30 percent range.
Second, this provision would ensure that once the CFTC decides an issue of fact or law necessary to its determination to deny a whistleblower an award on a related action, the whistleblower will be precluded from relitigating the same issue before the Commission. For example, if the CFTC determines that the whistleblower's information did not lead to the successful enforcement of a related action, the whistleblower may not attempt to circumvent this adverse determination by relitigating the same issue before the Commission. The application of collateral estoppel principles in these circumstances would promote the orderly and consistent resolution of a whistleblower's claims, and would ensure that the subset of whistleblowers who can pursue both SEC and CFTC award claims on a related action are not unfairly afforded “two bites at the apple” relative to the majority of whistleblowers who would not have this dual opportunity. 
D. Proposed Rule 21F-4—Other Definitions
Although the statute defines several relevant terms, Proposed Rule 21F-4 would define some additional terms that are important to understanding the scope of the whistleblower award program, in order to provide greater clarity and certainty about the operation and scope of the program.
Proposed Rule 21F-4(a)—Voluntary submission of information.
Under Section 21F(b)(1) of the Exchange Act,  whistleblowers are eligible for awards only when they provide original information to the Commission “voluntarily.” Proposed Rule 21F-4(a)(1) would define a submission as voluntary if a whistleblower provides the Commission with information before receiving any formal or informal request, inquiry, or demand from the Commission, Congress, any other Federal, State or local authority, any self-regulatory organization, or the Public Company Accounting Oversight Board about a matter to which the information in the whistleblower's submission is relevant.
The first step in most Commission enforcement investigations is the opening of an informal inquiry. At this stage, because the staff has not yet been granted the authority to issue subpoenas, information is frequently requested from companies and members of the public on a “voluntary” basis in the sense that there is generally no legal requirement that the recipient of the request provide the information or even respond to the request. After a formal investigation is opened and the staff obtains subpoena authority, the staff retains discretion to seek documents or other information without legal compulsion, and often does so.
Proposed Rule 21F-4(a)(1) would make clear that, in order to have acted “voluntarily” under the statute, a whistleblower must do more than merely provide the Commission with information that is not compelled by subpoena (or by a court order following a Commission action to enforce a subpoena) or by other applicable law.  Rather, the whistleblower or his representative (such as an attorney) must come forward with the information before receiving any formal or informal request, inquiry, or demand from the Commission staff or from any other authority described in the proposed rule about a matter to which the whistleblower's information is relevant. 
A request, inquiry, or demand that is directed to an employer is also considered to be directed to employees who possess the documents or other information that is within the scope of the request to the employer. Accordingly, a subsequent whistleblower submission from any such employee will not be considered “voluntary” for purposes of the rule, and the employee will not be eligible for award consideration, unless the employer fails to provide the employee's documents or information to the requesting authority in a timely manner. 
This approach is consistent with the statutory purpose of creating a strong incentive for whistleblowers to come forward early with information about possible violations of the securities laws rather than wait until Government or other official investigators “come knocking on the door.”  This approach is also consistent with the approach Federal courts have taken in determining whether a private plaintiff, suing on behalf of the Government under the qui tam provisions of the False Claims Act, “voluntarily” provided information about the false or fraudulent claims to the Government before filing suit. 
Disclosure to the Government should also not be considered voluntary if the individual has a clear duty to report violations of the type at issue.  Thus, for example, Section 21F(c)(2) of the statute  prohibits awards to members, officers, or employees of an appropriate regulatory agency, the Department of Justice, a self-regulatory organization, the Public Company Accounting Oversight Board, a law enforcement organization, or to persons who obtain their information as a result of an audit of financial statements and who would be subject to the requirements of Section 10A of the Exchange Act. The Commission anticipates that there may be other similarly-situated persons who are under a pre-existing legal duty to report information about violations to the Commission or to any of the other authorities described in subsection (a)(1) of the proposed rule. Proposed Rule 21F-4(a)(2) provides that submissions from such individuals will not be considered voluntary for purposes of Section 21F. For example, a Government contracting officer would not be considered for a whistleblower award if the officer discovered and reported fraud on a Government contract that was material to the contractor's earnings.  Depending on the particular regulations or other authorities that governed, a city officer or employee with responsibility for the city's pension fund might have a pre-existing legal duty to report fraud in connection with the fund's management or financial reporting to appropriate city authorities. Proposed Rule 21F-4(a)(2) also includes a similar exclusion for information that the whistleblower is contractually obligated to report to the Commission or to other authorities. This exclusion is intended to preclude awards to persons who provide information pursuant to preexisting agreements that obligate them to assist Commission staff or other investigative authorities.
Request for Comment:
2. Does Proposed Rule 21F-4(a)(1) appropriately define the circumstances when a whistleblower should be considered to have acted “voluntarily” in providing information about securities law violations to the Commission? Are there other circumstances not clearly included that should be in the rule?
3. Should the Commission exclude from the definition of “voluntarily” situations where the information was received from a whistleblower after he received a request, inquiry, or demand from a foreign regulatory authority, law enforcement organization or self-regulatory organization? Similarly, should the Commission exclude from the definition of “voluntarily” situations where the information was received from a whistleblower where the individual was under a pre-existing legal duty to report the information to a foreign regulatory authority, law enforcement organization or self-regulatory organization?
4. Is it appropriate for the proposed rule to consider a request or inquiry directed to an employer to be directed at individual employees who possess the documents or other information that is within the scope of the request? Should the class of persons who are covered by this rule be narrowed or expanded? Will the carve-out that permits such an employee to become a whistleblower if the employer fails to disclose the information the employee provided in a timely manner promote compliance with the law and the effective operation of Section 21F?
5. The standard described in Proposed Rule 21F-4(a)(1) would credit an individual with acting “voluntarily” in certain circumstances where the individual was aware of fraudulent conduct for an extended period of time, but chose not to come forward as a whistleblower until after he became aware of a governmental investigation or examination (such as by observing document requests being served on his employer or colleagues, but before he received an inquiry, request, or demand himself, assuming that he was not within the scope of an inquiry directed to his employer). Is this an appropriate result, and, if not, how should the proposed rule be modified to account for it?
6. Is the exclusion set forth in Proposed Rule 21F-4(a)(2) for information provided pursuant to a pre-existing legal or contractual duty to report violations appropriate? Should specific circumstances where there are pre-existing duties to report violations to investigating authorities be set forth in the rule, and if so, what are they? For example, should the rule preclude submissions from all Government employees?
Proposed Rule 21F-4(b)—Original Information.
Paragraph (1) of Proposed Rule 21F-4(b) begins with the definition of “original information” set forth in Section 21F(a)(3) of the Exchange Act.  “Original information” means information that is derived from the whistleblower's independent knowledge or analysis; is not already known to the Commission from any other source, unless the whistleblower is the original source of the information; and is not exclusively derived from an allegation made in a judicial or administrative hearing,  in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information. Paragraph (1) also requires that “original information” be provided to the Commission for the first time after July 21, 2010 (the date of enactment of Dodd-Frank). Although Dodd-Frank authorizes the Commission to pay whistleblower awards on the basis of original information that is submitted in writing prior to the effective date of final rules implementing Section 21F (assuming that all of the other requirements for an award are met), Dodd-Frank does not authorize the Commission to apply Section 21F retroactively to pay awards based upon information submitted before the effective date of the statute. 
Paragraphs (2) through (7) of Proposed Rule 21F-4(b) define some of the constituent terms in the definition of “original information,” so as to further describe when a whistleblower provides “original information.”
Paragraph (2) of Proposed Rule 21F-4(b) defines “independent knowledge” as factual information in the whistleblower's possession that is not obtained from publicly available sources. Publicly available sources may include both sources that are widely disseminated (such as corporate press releases and filings, media reports, and information on the Internet), and 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). Importantly, the proposed definition of “independent knowledge” does not require that a whistleblower have direct, first-hand knowledge of potential violations. Instead, knowledge may be obtained from any of the whistleblower's experiences, observations, or communications (subject to the exclusion for knowledge obtained from public sources). Thus, for example, under Proposed Rule 21F-4(b)(2), a whistleblower would have “independent knowledge” of information even if that knowledge derives from facts or other information that has been conveyed to the whistleblower by third parties. 
The Commission preliminarily believes that defining “independent knowledge” in this manner best effectuates the purposes of Section 21F. An individual may learn about potential violations of the securities laws without being personally involved in the conduct. If an individual voluntarily comes forward with such information, and the information leads the Commission to a successful enforcement action (as defined in Proposed Rule 21F-4(c)), that individual should be eligible to receive a whistleblower award.
Under Section 21F(a)(3)(A) of the Exchange Act,  the original information provided by a whistleblower can include information that is derived from independent knowledge and also from independent “analysis.” Proposed Rule 21F-4(b)(3) would define “independent analysis” to mean the whistleblower's own analysis, whether done alone or in combination with others. The proposed rule thus recognizes that analysis—which may include academic or professional studies—can be the product of collaboration among two or more individuals. “Analysis” would mean the whistleblower's examination and evaluation of information that may be generally available, but which reveals information that is not generally known or available to the public. This definition recognizes that there are circumstances where individuals can review publicly available information, and, through their additional evaluation and analysis, provide vital assistance to the Commission staff in understanding complex schemes and identifying securities violations.
Proposed Rule 21F-4(b)(4) provides that information will not be considered to derive from an individual's “independent knowledge” or “independent analysis” in seven circumstances. The first two exclusions apply to attorneys and to persons such as accountants and experts when they assist attorneys on client matters, because of the prominent role that attorneys play in all aspects of practice before the Commission and the special duties they owe to clients. The first proposed exclusion is for information that was obtained through a communication that is subject to the attorney-client privilege.  Compliance with the Federal securities laws is promoted when individuals, corporate officers, and others consult with counsel about potential violations, and the attorney-client privilege furthers such consultation. This important benefit could be undermined if the whistleblower award program created monetary incentives for counsel to disclose information about potential securities violations that they learned of through privileged communications.
The exception for information obtained through privileged attorney-client communications would not apply in circumstances where the attorney is permitted to disclose the substance of a communication that would otherwise be privileged. This would include, for example, circumstances where the privilege has been waived, or where disclosure of confidential information to the Commission without the client's consent is permitted pursuant to either 17 CFR 205.3(d)(2) or the applicable state bar ethical rules. 
This exclusion is not intended to preclude an individual who has independent knowledge of facts indicating potential securities violations from becoming a whistleblower if that individual chooses to consult with an attorney. Facts in the possession of such an individual do not become privileged simply because he or she consulted with an attorney. Rather, this exclusion from independent knowledge or analysis only means that an attorney cannot make a whistleblower submission on his or her own behalf that is based upon information the attorney obtained through a privileged communication with a client.
The second exclusion applies when a would-be whistleblower obtains information as a result of the legal representation of a client on whose behalf the whistleblower's services, or the services of the whistleblower's employer or firm, have been retained, and the person seeks to make a whistleblower submission for his or her own benefit. The second exclusion would, for example, preclude an attorney from using information obtained in connection with the attorney's representation of a client to make a whistleblower submission for the attorney's own benefit. This exclusion would not be limited to information obtained through privileged communications, but would instead extend to any information obtained by the attorney in the course and as a result of representation of the client. For example, under the proposed rule, an attorney who obtained evidence of securities violations through document discovery from an opposing party in litigation could not use that information to make a whistleblower submission on his or her own behalf. However, the attorney could use the information to make a submission on behalf of the client in whose litigation the discovery was obtained. The Commission believes that this limitation is generally consistent with attorneys' ethical obligations,  and is a reasonable measure to prevent creating financial incentives for attorneys to take undue advantage of clients. The language of the exclusion is also intended to apply to other members or employees of a firm in which the attorney works, as well as to other persons who are retained, or whose company or firm is retained, to perform services in relation to, or to assist, an attorney's representation of a client (e.g., accountants and experts). As with the previous exclusion, this exclusion would not apply where the attorney is permitted to make a disclosure pursuant to 17 CFR 205.3(d)(2), the applicable state bar ethical rules, or otherwise.
The third proposed exclusion applies to persons who obtain information through the performance of an engagement required under the securities laws by an independent public accountant, if that information relates to a violation by the engagement client or the client's directors, officers or other employees.  Section 21F(c)(2)(C) of the Exchange Act excludes from award eligibility “any person who obtained the information provided to the Commission through an audit of a company's financial statements, and making a whistleblower submission would be contrary to the requirements of Section 10A of the Exchange Act.”  Section 10A requires registered public accounting firms with respect to an audit of the issuer to include audit procedures to detect illegal acts.  It also prescribes requirements for the auditor if the auditor detects or otherwise becomes aware of information indicating an illegal act, which in certain circumstances can include reporting directly to the Commission. In addition to these requirements, there are other Commission-required engagements by an independent public accountant, such as audits of broker-dealers  and custody exams of investment advisers,  that require the external accountant to report instances of noncompliance. Professional standards for independent public accountants also prescribe responsibilities when a possible illegal act is detected. 
In light of these pre-existing requirements, and consistent with the role of an independent public accountant, we are proposing to exclude from the definitions of “independent knowledge and “independent analysis” any would-be whistleblowers whose information was gained through the performance of an engagement required under the securities laws by an independent public accountant.  This proposed exclusion applies to the employees of the independent public accountant and would not apply to the client's employees who perform an accounting function, even if they were interacting with the company's outside auditor. This proposed exclusion only would apply if the information relates to a violation by the engagement client or the client's directors, officers or other employees. It would not exclude information with respect to the independent public accountant's performance of the engagement itself, such as a violation of the accountant's requirements with respect to the engagement.
The fourth proposed exclusion applies when a person with legal, compliance, audit, supervisory, or governance responsibilities for an entity receives information about potential violations, and the information was communicated to the person with the reasonable expectation that the person would take appropriate steps to cause the entity to respond to the violation.  The fifth proposed exclusion is closely related, and applies any other time that information is obtained from or through an entity's legal, compliance, audit, or similar functions or processes for identifying, reporting, and addressing potential non-compliance with applicable law.  However, each of these two exclusions ceases to be applicable, with the result that an individual may be deemed to have “independent knowledge,” and therefore may become a whistleblower, if the entity does not disclose the information to the Commission within a reasonable time or if the entity proceeds in bad faith.
Compliance with the Federal securities laws is promoted when companies implement effective legal, audit, compliance, and similar functions. The rationale for these proposed exclusions is the concern that Section 21F not be implemented in a way that would create incentives for persons who obtain information through such functions, as well as other responsible persons who are informed of wrongdoing, to circumvent or undermine the proper operation of the entity's internal processes for responding to violations of law. Accordingly, the proposed rule would limit the circumstances in which such persons may use that knowledge to become whistleblowers. This would include officers, directors, employees, and consultants who learn of potential violations as part of their corporate responsibilities in the expectation that they will take steps to address the violations, as well as persons who gain knowledge about misconduct otherwise from or through the various processes that companies employ to identify problems and advance compliance with legal standards. The latter group would include not only persons directly responsible for compliance-related processes, but other persons as well. For example, an employee who learns about potential violations only because a compliance officer questions him about the conduct, and not from any other source, would not be considered to have “independent knowledge” for purposes of the proposed rule, and therefore could not become a whistleblower (unless, as is explained below, the company does not disclose the conduct to the Commission within a reasonable time or proceeds in bad faith). 
Internal compliance and similar functions, when effective, can constrain the opportunities for unlawful activity. In some cases, an entity's compliance program will fail to lead the entity to respond appropriately to violations. Under the proposed rule, if the entity did not disclose the information to the Commission within a reasonable time or proceeded in bad faith, these exclusions would no longer apply, thereby making an individual who knows this undisclosed information eligible to become a whistleblower by providing “independent knowledge” of the violations.
This approach is intended to strike a balance between two competing goals. On the one hand, it is designed to facilitate the operation of effective internal compliance programs by not creating incentives for company personnel to seek a personal financial benefit by “front running” internal investigations and similar processes that are important components of effective company compliance programs. On the other hand, it would permit such persons to act as whistleblowers in circumstances where the company knows about material misconduct but has not taken appropriate steps to respond. Accordingly, in determining whether these persons would be considered to have provided “independent knowledge” and would be eligible for whistleblower awards, the proposed rule focuses on whether the entity proceeded in bad faith or did not disclose the information to the Commission within a reasonable time. 
In determining whether an entity acted in bad faith, the Commission will, among other things, consider whether the entity or any personnel who were responsible for responding to allegations of misconduct took affirmative steps to hinder the preservation of evidence or a timely and appropriate investigation. For example, an effort by company officials to destroy documents or to interfere with witnesses would constitute bad faith conduct. Similarly, if a company engaged in a sham investigation of allegations, then the company's response would constitute bad faith.
The determination of what is a “reasonable time” in this context will necessarily be a flexible concept that will depend on all of the facts and circumstances of the particular case. In some cases—for example, an ongoing fraud that poses substantial risk of harm to investors—a “reasonable time” for disclosing violations to the Commission may be almost immediate. Nonetheless, given the competing concerns just described, the Commission preliminarily believes that the proposed rule should not define one fixed period that would represent a “reasonable time” in all cases. We anticipate that in evaluating any whistleblower submissions by personnel covered by these exclusions, we will review all of the circumstances of the case after the fact in order to determine whether the company disclosed the misconduct to the Commission within a reasonable time or proceeded in bad faith.
Further, if we determine that the whistleblower played a role in causing the company not to disclose the violations, or to delay in disclosing them, we will take this fact into consideration in our determination of whether to consider the whistleblower eligible for an award. A whistleblower will not be permitted to claim that the company did not disclose information to the Commission in a reasonable time if the whistleblower bears some responsibility for that failure.
The following chart illustrates the fourth and fifth exclusions from “independent knowledge:”
|Source of employee's knowledge||Does it qualify as “independent knowledge”?|
|Employee receives information because he/she is reasonably expected to take appropriate steps to respond to the violation because of his/her legal, compliance, audit or supervisory responsibilities||Employee will not be deemed to have independent knowledge of the information unless (1) the entity did not disclose the violation to the Commission within a reasonable period of time, or (2) acts in bad faith.|
|Employee learns of information through company's legal, compliance, audit or similar functions or processes for identifying or addressing potential non-compliance with laws||Same as above.|
|Employee otherwise lawfully learns of information through his/her work-related functions||Employee will generally be deemed to have independent knowledge of the information [Note: if employee elects to report internally first, he/she will receive the benefit of a “90-day look-back” for subsequent submission of information to SEC (See Proposed Rule 21F-4(b)(7))].|
The sixth exclusion from “independent knowledge” is for information that was obtained by a means or in a manner that violates applicable Federal or state criminal law. The policy rationale for this proposed exclusion is that a whistleblower should not be rewarded for violating a Federal or State criminal law. While Congress clearly intended through Section 21F to provide greater incentives for whistleblowers to come forward with information about wrongdoing, we think it is questionable that Congress intended to encourage whistleblower assistance to a law enforcement authority where the assistance itself is undertaken in violation of Federal or State criminal law.
Finally. in order to prevent evasion of the rules, the seventh proposed exclusion would apply to anyone who obtained their information from persons subject to the first six exclusions.
Request for Comment:
7. Is it appropriate to include knowledge that is not direct, first-hand knowledge, but is instead learned from others, as “independent knowledge,” subject only to an exclusion for knowledge learned from publicly-available sources?
8. Is there a different or more specific definition of “analysis” that would better effectuate the purposes of Section 21F?
9. Is it appropriate to exclude from the definition of “independent knowledge” or “independent analysis” information that is obtained through a communication that is protected by the attorney-client privilege? Are there other ways these rules should address privileged communications? For example, should other specific privileges be identified (spousal privilege, physician-patient privilege, clergy-congregant privilege, or others)? Should the exclusion apply broadly to information that is obtained through communications that are subject to any common law evidentiary privileges recognized under the laws of any state?
10. Is it appropriate to exclude from the definition of independent knowledge” or “independent analysis” information that is obtained through the performance of an engagement required under the securities laws by an independent public accountant, if that information relates to a violation by the engagement client or the client's directors, officers or other employees? Are there other ways that our rules should address the roles of accountants and auditors?
11. Should the exclusion for “independent knowledge” or “independent analysis” go beyond attorneys and auditors, and include other professionals who may obtain information about potential securities violations in the course of their work for clients? If so, are there appropriate ways to limit the nature or extent of the exclusion so that any recognition of relationships of professional trust does not undermine the purposes of Section 21F?
12. Apart from persons who obtain information through privileged communications, and professionals who have access to client information, are there still other categories of persons who should not be considered for whistleblower awards based upon their professional duties or the manner in which they may acquire information about potential securities violations? If such exclusions are appropriate, what limits, if any, should be placed on them in order not to undermine the purposes of Section 21F? Is the exclusion for knowledge obtained through violations of criminal law appropriate?
13. Do the proposed exclusions for information obtained by a person with legal, compliance, audit, supervisory, or governance responsibilities for an entity under an expectation that the person would cause the entity to take steps to respond to the violation, and for information otherwise obtained from or through an entity's legal, compliance, audit, or similar functions strike the proper balance? Will the carve-out for situations where the entity does not disclose the information within a reasonable time promote effective self-policing functions and compliance with the law without undermining the operation of Section 21F? Should a “reasonable time” be defined in the rule and, if so, what period should be specified (e.g., three months, six months, one year)? Does this provide sufficient incentives for people to continue to utilize internal compliance processes? Are there alternative or additional provisions the Commission should consider that would promote effective self-policing and self-reporting while still being consistent with the goals and text of Section 21F?
14. Is the proposed exclusion for information obtained by a violation of Federal or State criminal law appropriate? Should the exclusion extend to violations of the criminal laws of foreign countries? What would be the policy reasons for either extending the exclusion to violations of foreign criminal law or not? Are there any other types of criminal violations that should be included? If so, on what basis?
15. How should our rules treat information that may be provided to us in violation of judicial or administrative orders such as protective orders in private litigation? Should we exclude from whistleblower awards persons who provide information in violation of such orders? What would be the policy reason for this proposed exclusion?
Under the statutory definition of “original information,” a whistleblower who provides information that the Commission already knows from another source has not provided original information, unless the whistleblower is the “original source” of that information. Paragraphs (5) and (6) of Proposed Rule 21F-4(b) describe how the Commission proposes to interpret and apply the term “original source” as used in the definition of “original information.” Under the proposed rule, a whistleblower is an “original source” of the same information that the Commission obtains from another source if the other source obtained the information from the whistleblower or his representative. The whistleblower bears the burden of establishing that he is the original source of information.
In Commission investigations, one way that this situation may arise is if the staff receives a referral from another authority such as the Department of Justice, a self-regulatory organization, or another organization that is identified in the proposed rule. In these circumstances, the proposed rule would credit the whistleblower with being the “original source” of information on which the referral was based as long as the whistleblower “voluntarily” provided the information to the other authority within the meaning of these rules; i.e., the whistleblower or his representative must have come forward and given the other authority the information before receiving any request, inquiry, or demand to which the information was relevant. If a whistleblower claims to be the original source of information provided to the Commission by one of these authorities or another entity such as the whistleblower's employer, the Commission may seek assistance and confirmation from the other authority or entity in determining whether the whistleblower is the original source of the information.
Paragraph (6) of Proposed Rule 21F-4(b) addresses circumstances where the Commission already possesses some information about a matter at the time that a whistleblower provides additional information about the same matter. The whistleblower will be considered the “original source” of any information that is derived from his independent knowledge or independent analysis and that materially adds to the information that the Commission already possesses. The standard is modeled after the definition of “original source” that Congress included in the False Claims Act through amendments earlier this year. 
As is described elsewhere in these proposed rules, a whistleblower will need to submit his information as well as a Form WB-DEC in order to start the process and establish the whistleblower's eligibility for award consideration.  A whistleblower who provides information to another authority first will need to follow these same procedures and submit the necessary forms to the Commission in order to perfect his status as a whistleblower under the Commission's whistleblower program. However, under paragraph (7) of Proposed Rule 21F-4(b), as long as the whistleblower submits the necessary forms to the Commission within 90 days after he provided the same information to the other authority, the Commission will consider the whistleblower's submission to be effective as of that earlier date. As noted above, the whistleblower must establish that he is the original source of the information provided to the other authority as well as the date of his submission, but the Commission may seek confirmation from the other authority in making this determination. The objective of this procedure is to provide further incentive for persons with knowledge of securities violations to come forward (consistent with the purposes of Section 21F) by assuring potential whistleblowers that they can provide information to appropriate Government or regulatory authorities, and their “place in line” will be protected in the event that other whistleblowers later provide the same information directly to the Commission.
For similar reasons, proposed rule 21F-4(b)(7) extends the same protection to whistleblowers who provide information about potential violations to the persons specified in Rules 21F-4(b)(4)(iv) and (v) (i.e., personnel involved in compliance or similar functions, or who are informed about potential violations with the expectation that they will take steps to address them), and who, within 90 days, submit the necessary whistleblower forms to the Commission. Compliance with the Federal securities laws is promoted when companies have effective programs for identifying, correcting, and self-reporting unlawful conduct by company officers or employees. The objective of this provision is to support, not undermine, the effective functioning of company compliance and related systems by allowing employees to take their concerns about potential violations to appropriate company officials first while still preserving their rights under the Commission's whistleblower program. This objective is also important because internal compliance and reporting systems are essential sources of information for companies about misconduct that may not be securities-related (e.g., employment discrimination or harassment complaints), as well as for securities-related complaints. The Commission does not intend for its rules to undermine effective company processes for receiving reports on potential violations that may be outside of the Commission's enforcement interest, but are nonetheless important for companies to address.
Given the policy interest in fostering robust corporate compliance programs, we considered the possible approach of requiring potential whistleblowers to utilize in-house complaint and reporting procedures, thereby giving employers an opportunity to address misconduct, before they make a whistleblower submission to the Commission. Among our concerns was the fact that, while many employers have compliance processes that are well-documented, thorough, and robust, and offer whistleblowers appropriate assurances of confidentiality, others lack such established procedures and protections.
We emphasize, however, that our proposal not to require a whistleblower to utilize internal compliance processes does not mean that our receipt of a whistleblower complaint will lead to internal processes being bypassed. We expect that in appropriate cases, consistent with the public interest and our obligation to preserve the confidentiality of a whistleblower, our staff will, upon receiving a whistleblower complaint, contact a company, describe the nature of the allegations, and give the company an opportunity to investigate the matter and report back. The company's actions in these circumstances will be considered in accordance with the Commission's Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions.  This has been the approach of the Enforcement staff in the past, and the Commission expects that it will continue in the future. Thus, in this respect, we do not expect our receipt of whistleblower complaints to minimize the importance of effective company processes for addressing allegations of wrongful conduct. 
The Commission's primary goal, consistent with the congressional intent behind Section 21F, is to encourage the submission of high-quality information to facilitate the effectiveness and efficiency of the Commission's enforcement program. At the same time, we also want to implement Section 21F in a way that encourages strong company compliance programs. Therefore, we request comment on all aspects of the intersection between Section 21F and established internal systems for the receipt, handling, and response to complaints about potential violations of law. We particularly seek recommendations on structures, processes, and incentives that we should consider implementing in order to strike the right balance between the Commission's need for a strong and effective whistleblower awards program, and the importance of preserving robust corporate structures for self-policing and self-reporting.
Request for Comment. The Commission requests comment on all aspects of the definition of “original source” set forth in Proposed Rule 21F-4(b)(4) and (5).
16. Is the provision that would credit individuals with providing original information to the Commission as of the date of their submission to another Governmental or regulatory authority, or to company legal, compliance, or audit personnel, appropriate? In particular, does the provision regarding the providing of information to a company's legal, compliance, or audit personnel appropriately accommodate the internal compliance process?
17. Is the 90-day deadline for submitting Forms TCR and WB-DEC to the Commission (after initially providing information about violations or potential violations to another authority or the employer's legal, compliance, or audit personnel) the appropriate timeframe? Should a longer time period apply in instances where a whistleblower believes that the company has or will proceed in bad faith? Would a 90-day deadline for submitting the TCR and WB-DEC also be appropriate in circumstances where an individual provides information to an SEC staff member? Would a shorter time frame be appropriate? Should there be different time frames for disclosures to other authorities and disclosures to an employer's legal, compliance or audit personnel?
18. Should the Commission consider other ways to promote continued robust corporate compliance processes consistent with the requirements of Section 21F? If so, what alternative requirements should be adopted? Should the Commission consider a rule that, in some fashion, would require whistleblowers to utilize employer-sponsored complaint and reporting procedures? What would be the appropriate contours of such a rule, and how could it be implemented without undermining the purposes of Section 21F? Are there other incentives or processes the Commission could adopt that would promote the purposes of Section 21F while still preserving a critical role for corporate self-policing and self-reporting?
19. Would the proposed rules frustrate internal compliance structures and systems that many companies have established in response to Section 10A(m) of the Exchange Act, as added by Section 301 of the Sarbanes-Oxley Act of 2002, and related exchange listing standards? If so, consistent with Section 21F, how can the potential negative impact on compliance programs be minimized?
Proposed Rule 21F-4(c)—Information that Leads to Successful Enforcement. Under Section 21F, a whistleblower's eligibility for an award depends in part on whether the whistleblower's original information “led to the successful enforcement” of the Commission's action or a related action. Proposed Rule 21F-4(c) defines when original information “led to successful enforcement.”
The Commission's enforcement practice generally proceeds in several stages. First, the staff opens an investigation based upon some indication of potential violations of the Federal securities laws. Second, the staff conducts its investigation to gather additional facts in order to determine whether there is sufficient basis to recommend enforcement action. If so, the staff may recommend, and the Commission may authorize, the filing of an action. The definition in Proposed Rule 21F-4(c) would consider the significance of the whistleblower's information to both the decision to open an investigation and the success of any resulting enforcement action. The proposed rule would distinguish between situations where the whistleblower's information causes the staff to begin an investigation, and situations where the whistleblower provides information about conduct that is already under investigation. In the latter case, awards would be limited to the rare circumstances where the whistleblower provided essential information that the staff would not have otherwise obtained in the normal course of the investigation. Paragraphs (1) and (2) of Proposed Rule 21F-4(c) reflect these considerations.
Paragraph (1) of Proposed Rule 21F-4(c) applies to situations where the staff is not already reviewing the conduct in question, and establishes a two-part test for determining whether original information voluntarily provided by a whistleblower led to successful enforcement of a Commission action. First, the information must have caused the staff to commence an examination, open an investigation, reopen an investigation that had been closed, or to inquire concerning new and different conduct as part of an open examination or investigation.  This does not necessarily contemplate that the whistleblower's information will be the only information that the staff obtains before deciding to proceed. However, the proposed rule would apply when the whistleblower gave the staff information about conduct that the staff is not already investigating or examining, and that information was a principal motivating factor behind the staff's decision to begin looking into the whistleblower's allegations.
Second, if the whistleblower's information caused the Commission staff to start looking at the conduct for the first time, the proposed rule would require that the information “significantly contributed” to the success of an enforcement action filed by the Commission. The proposed rule includes this requirement because the Commission believes that it is not the intent of Section 21F to authorize whistleblower awards for any and all tips about conduct that led to the opening of an investigation if the resulting investigation concludes in a successful enforcement action. Rather, implicit in the requirement that a whistleblower's information “led to * * * successful enforcement” is the further expectation that the information, because of its high quality, reliability, and specificity, had a meaningful connection to the Commission's ability to successfully complete its investigation and to either obtain a settlement or prevail in a litigated proceeding.
Ultimately, successful enforcement of a judicial or administrative action depends on the staff's ability to establish unlawful conduct by a preponderance of evidence. Thus, in order to “lead to successful enforcement,” the “original information” provided by a whistleblower should be connected to evidence that plays a significant role in successfully establishing the Commission's claim. For example, the “led to” standard of Proposed Rule 21F-4(c)(1) would be met if a whistleblower were to provide the Commission staff with strong, direct evidence of violations that supported one or more claims in a successful enforcement action. To give another example, a whistleblower whose information did not provide this degree of evidence in itself, but who played a critical role in advancing the investigation by leading the staff directly to evidence that provided important support for one or more of the Commission's claims could also receive an award, in particular if the evidence the whistleblower pointed to might have otherwise been difficult to obtain. A whistleblower who only provided vague information, or an unsupported tip, or evidence that was tangential and did not significantly help the Commission successfully establish its claims, would not meet the standard of this proposed rule.
If information that a whistleblower provides to the Commission consists of “independent analysis” rather than “independent knowledge,” the evaluation of whether this analysis “led to successful enforcement” similarly would turn on whether it significantly contributed to the success of the action. This would involve, for example, considering the degree to which the analysis, by itself and without further investigation, indicated a high likelihood of unlawful conduct that was the basis, or was substantially the basis, for one or more claims in the Commission's enforcement action. The purpose of this provision is to ensure that the analysis provided to the Commission results in the efficiency and effectiveness benefits to the enforcement program that were intended by Congress.
Paragraph (2) of Proposed Rule 21F-4(c) sets forth a separate, higher standard for cases in which a whistleblower provides original information to the Commission about conduct that is already under examination or investigation by the Commission, Congress, any other Federal, state, or local authority, any self-regulatory organization, or the Public Company Accounting Oversight Board. In this situation, the information will be considered to have led to the successful enforcement of a judicial or administrative action if the information would not have otherwise been obtained and was essential to the success of the action.  Although the Commission believes that awards under Section 21F generally should be limited to cases where whistleblowers provide original information about violations that are not already under investigation,  there may be rare circumstances where information received from a whistleblower in relation to an ongoing investigation is so significant to the success of a Commission action that a whistleblower award should be considered. For example, a whistleblower who has not been questioned by the staff in an investigation, but who nonetheless has access to, and comes forward with a document that had been concealed from the staff, and that establishes proof of wrongdoing that is critical to the Commission's ability to sustain its burden of proof, provides the type of assistance that should be considered for an award without regard to whether the staff was already investigating the conduct at the time the document was provided. We anticipate applying Proposed Rule 21F-4(c)(2) in a strict fashion, however, such that awards under this standard would be rare.
In considering the relationship between information obtained from a whistleblower and the success of an enforcement action, the Commission will apply the same standards in both settled and litigated actions. Specifically, in a litigated action the whistleblower's information must significantly contribute, or, in the case of conduct that is already under investigation, be essential, to the success of a claim on which the Commission prevails in litigation. For example, if a court finds in favor of the Commission on a number of claims in an enforcement action, but rejects the claims that are based upon the information the whistleblower provided, the whistleblower would not be considered eligible to receive an award.  Similarly, in a settled action the Commission would consider whether the whistleblower's information significantly contributed, or was essential, to allegations included in the Commission's Federal court complaint, or to factual findings in the Commission's administrative order.
Request for Comment:
20. Is the proposed standard for when original information voluntarily provided by a whistleblower “led to” successful enforcement action appropriate?
21. In cases where the original information provided by the whistleblower caused the staff to begin looking at conduct for the first time, should the standard also require that the whistleblower's information “significantly contributed” to a successful enforcement action?
a. If not, what standards should be used in the evaluation?
b. If yes, should the proposed rule define with greater specificity when information “significantly contributed” to enforcement action? In what way should the phrase be defined?
22. Is the proposal in Paragraph (c)(2), which would consider that a whistleblower's information “led to” successful enforcement even in cases where the whistleblower gave the Commission original information about conduct that was already under investigation, appropriate? Should the Commission's evaluation turn on whether the whistleblower's information would not otherwise have been obtained and was essential to the success of the action? If not, what other standard(s) should apply?
Proposed Rule 21F-4(d)—Action
Proposed Rule 21F-4(d) defines the term “action.” For purposes of calculating whether monetary sanctions in a Commission action exceed the $1,000,000 threshold required for an award payment pursuant to Section 21F of the Exchange Act, as well as determining the monetary sanctions on which awards are based,  the Commission proposes to interpret the term “action” to mean a single captioned civil or administrative proceeding. This approach to determining the scope of an “action” is consistent with the most common meaning of the term,  and is driven by the plain text of Section 21F. Section 21F(a)(1) defines a “covered judicial or administrative action” as “any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000.”  When the conditions for an award are satisfied in connection with a “covered judicial or administrative action,” the Commission must pay an award or awards in an aggregate amount equal to not less than 10 percent and not more than 30 percent “in total, of what has been collected of the monetary sanctions imposed in the action * * *.” 
Two implications follow from this interpretation. First, the “action” would include all defendants or respondents, and all claims, that are brought within that proceeding without regard to which specific defendants or respondents, or which specific claims, were included in the action as a result of the information that the whistleblower provided. For example, if a whistleblower provided information concerning insider trading by a single individual, and, after an investigation, the Commission brought an action against that individual and others in a single captioned proceeding in Federal court, then the sanctions collected from all the defendants in the action would be added up to determine whether the $1,000,000 threshold has been met. Similarly, if a corporate accounting employee provided the Commission with information about a fraudulent accounting practice, and, after investigation, the Commission brought an action that also included unrelated claims discovered during the investigation, the $1,000,000 threshold amount for an award would be determined based upon the total monetary sanctions obtained in the action. This approach would effectuate the purposes of Section 21F by enhancing the incentives for individuals to come forward and report potential securities law violations to the Commission,  and would avoid the challenges associated with attempting to allocate monetary sanctions involving multiple individuals and claims based upon the select individuals and claims reported by whistleblowers.
Second, this proposed approach to interpreting the term “action” also would mean that the Commission would not aggregate sanctions that are imposed in separate judicial or administrative actions for purposes of determining whether the $1,000,000 threshold is satisfied, even if the actions arise out of a single investigation. For example, if a whistleblower's submission leads to two separate enforcement actions, each with total sanctions of $600,000, then no whistleblower award would be authorized because no single action will have obtained sanctions exceeding $1,000,000.
Request for Comment:
23. The Commission requests comment on the proposed definition of the word “action.” Are there other ways to define an “action” that are consistent with the text of Section 21F and that will better effectuate the purposes of the statute?
Proposed Rules 21F-4(e)—Monetary Sanctions. Proposed Rule 21F-4(e) defines “monetary sanctions” to mean any money, including penalties, disgorgement, and interest, ordered to be paid and any money deposited into a disgorgement fund or other fund pursuant to Section 308(b) of the Sarbanes-Oxley Act of 2002 as a result of a Commission action or a related action. This definition tracks the definition of the same term found in Section 21F of the Exchange Act.  The Commission interprets the reference in the statute to “penalties, disgorgement, and interest” to be examples of monetary sanctions, and not exclusive. Thus, regardless of how designated, the Commission will consider all amounts that are “ordered to be paid” in an action as “monetary sanctions” for purposes of Section 21F.
Proposed Rule 21F-4(f)—Appropriate Regulatory Agency.
Section 3(a)(34) of the Exchange Act  designates the Commission, the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision as “appropriate regulatory agencies” for specified entities and functions.  For example, when a national bank is a municipal securities dealer, the Comptroller of the Currency is designated as the appropriate regulatory agency; when a state member bank of the Federal Reserve System is a municipal securities dealer, the Federal Reserve Board is designated as the appropriate regulatory agency.
Proposed Rule 21F-4(f) would make clear that the Commission, the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (as well as any other agencies that may be added to Section 3(a)(34) of the Exchange Act by future amendment) are deemed to be “appropriate regulatory agencies” for all purposes under Section 21F of the Exchange Act.  This means, in particular, that the Commission would consider a member, officer, or employee of one of the designated agencies to be ineligible to receive a whistleblower award under any circumstances, even if the information that the person possesses is unrelated to the agency's regulatory function. This interpretation would place members, officers, and employees of appropriate regulatory agencies on equal footing with those of other organizations, such as the Public Company Accounting Oversight Board and law enforcement organizations, who are also statutorily ineligible to receive whistleblower awards. 
Request for Comment:
24. Is the proposed definition of “appropriate regulatory agency” appropriate? Are there other definitions that that should be adopted instead?
Proposed Rule 21F-4(g)—Self-Regulatory Organization. Section 3(a)(26) of the Exchange Act  designates national securities exchanges, registered securities associations, and registered clearing agencies as self-regulatory organizations, and the Municipal Securities Rulemaking Board as a self-regulatory organization solely for purposes of Sections 19(b) and (c) of the Exchange Act (relating to rulemaking).  Consistent with the approach taken with regard to the definition of “appropriate regulatory agency” (see discussion above), Proposed Rule 21F-4(g) would make clear that the Municipal Securities Rulemaking Board is considered to be a “self-regulatory organization” for all purposes under Section 21F.
Request for Comment:
25. Is the proposed definition of “self-regulatory organization” appropriate? Are there other definitions that that should be adopted instead?
E. Proposed Rule 21F-5—Amount of Award
Proposed Rule 21F-5 states that, if all conditions are met, the Commission will pay an award of at least 10 percent and no more than 30 percent of the total monetary sanctions collected in successful Commission and related actions. This range is specified in Section 21F(b)(1) of the Exchange Act. Where multiple whistleblowers are entitled to an award, paragraph (b) states that the Commission will independently determine the appropriate award percentage for each whistleblower, but total award payments, in the aggregate, will equal between 10 and 30 percent of the monetary sanctions collected in the Commission's action and the related action. Thus, for example, one whistleblower could receive an award of 25 percent of the collected sanctions, and another could receive an award of 5 percent, but they could not each receive an award of 30 percent. Since the Commission anticipates that the timing of award determinations and the value of a whistleblower's contribution could be different for the Commission's action and for related actions, the proposed rule would provide that the percentage awarded in connection with a Commission action may differ from the percentage awarded in related actions.
Request for Comment:
24. Is the provision stating that the percentage amount of an award in a Commission action may differ from the percentage awarded in a related action appropriate?
F. Proposed Rule 21F-6—Criteria for Determining Amount of Award
Assuming that all of the conditions for making an award to a whistleblower have been satisfied, Proposed Rule 21F-6 sets forth the criteria that the Commission would take into consideration in determining the amount of the award. Paragraphs (a) through (c) of the proposed rule recite three criteria that Section 21F of the Exchange Act requires the Commission to consider, and paragraph (d) adds a fourth criterion.
Paragraph (a) requires the Commission to consider the significance of the information provided by a whistleblower to the success of the Commission action or related action. Paragraph (b) requires the Commission to consider the degree of assistance provided by the whistleblower and any legal representative of the whistleblower in the Commission action or related action. Paragraph (c) requires the Commission to consider its programmatic interest in deterring violations of the securities laws by making awards to whistleblowers that provide information that leads to successful enforcement actions. Paragraph (d) would permit the Commission to consider whether an award otherwise enhances its ability to enforce the Federal securities laws, protect investors, and encourage the submission of high quality information from whistleblowers.
The Commission anticipates that the determination of awards amounts pursuant to paragraphs (a)-(d) will involve highly individualized review of the circumstances surrounding each award. To allow for this, the Commission preliminarily believes that the four criteria afford the Commission broad discretion to weigh a multitude of considerations in determining the amount of any particular award. Depending upon the facts and circumstances of each case, some of the considerations may not be applicable or may deserve greater weight than others.
The permissible considerations include, but are not limited to, those set forth below. These considerations are not listed in order of importance nor are they intended to be all-inclusive or to require a specific determination in any particular case:
- The character of the enforcement action, including whether its subject matter is a Commission priority, whether the reported misconduct involves regulated entities or fiduciaries, the type and severity of the securities violations, the age and duration of misconduct, the number of violations, and the isolated, repetitive, or ongoing nature of the violations;
- The dangers to investors or others presented by the underlying violations involved in the enforcement action, including the amount of harm or potential harm caused by the underlying violations, the type of harm resulting from or threatened by the underlying violations, and the number of individuals or entities harmed;
- The timeliness, degree, reliability, and effectiveness of the whistleblower's assistance;
- The time and resources conserved as a result of the whistleblower's assistance;
- Whether the whistleblower encouraged or authorized others to assist the staff who might otherwise not have participated in the investigation or related action;
- Any unique hardships experienced by the whistleblower as a result of his or her reporting and assisting in the enforcement action;
- The degree to which the whistleblower took steps to prevent the violations from occurring or continuing;
- The efforts undertaken by the whistleblower to remediate the harm caused by the violations, including assisting the authorities in the recovery of the fruits and instrumentalities of the violations;
- Whether the information provided by the whistleblower related to only a portion of the successful claims brought in the Commission or related action; 
- The culpability of the whistleblower including whether the whistleblower acted with scienter, both generally and in relation to others who participated in the misconduct; and
- Whether, and the extent to which, a whistleblower reported the potential violation through effective internal whistleblower, legal or compliance procedures before reporting the violation to the Commission.
This last consideration is not a requirement for an award above the 10 percent statutory minimum and whistleblowers will not be penalized if they do not avail themselves of this opportunity for fear of retaliation or other legitimate reasons. The Commission will consider higher percentage awards for whistleblowers who first report violations through their compliance programs. Corporate compliance programs play a role in preventing and detecting securities violations that could harm investors. If these programs are not utilized or working, our system of securities regulation will be less effective. Accordingly, the Commission believes that encouraging whistleblowers to report securities violations to their corporate compliance programs is consistent with the Commission's investor protection mission.
Request for Comment:
27. Should the Commission identify, by rule, additional criteria that it will consider in determining the amount of an award? If so, what criteria should be included? Should we include as a criterion the consideration of whether, and the extent to which, a whistleblower reported the potential violation through effective internal whistleblower, legal or compliance procedures before reporting the violation to the Commission? Should we include any of the other considerations described above?
28. Should we include the role and culpability of the whistleblower in the unlawful conduct as an express criterion that would result in reducing the amount of an award within the statutorily-required range? Should culpable whistleblowers be excluded from eligibility for awards? Would such an exclusion be consistent with the purposes of Section 21F?
G. Proposed Rule 21F-7—Confidentiality of Submissions
Proposed Rule 21F-7 reflects the confidentiality requirements set forth in Section 21F(h)(2) of the Exchange Act  with respect to information that could reasonably be expected to reveal the identity of a whistleblower. As a general matter, it is the Commission's policy and practice to treat all information obtained during its investigations as confidential and nonpublic. Disclosures of enforcement-related information to any person outside the Commission may only be made as authorized by the Commission and in accordance with applicable laws and regulations. Consistent with Section 21F(h)(2), the proposed rule explains that the Commission will not reveal the identity of a whistleblower or disclose other information that could reasonably be expected to reveal the identity of a whistleblower, except under circumstances described in the statute and the rule.  As is further explained below, there may be circumstances in which disclosure of information that identifies a whistleblower will be legally required or will be necessary for the protection of investors.
Paragraph (a)(1) of the proposed rule would authorize disclosure of information that could reasonably be expected to reveal the identity of a whistleblower when disclosure is required to a defendant or respondent in a Federal court or administrative action that the Commission files or in another public action or proceeding filed by an authority to which the Commission may provide the information. For example, in a related action brought as a criminal prosecution by the Department of Justice, disclosure of a whistleblower's identity may be required, in light of the requirement of the Sixth Amendment of the Constitution that a criminal defendant have the right to be confronted with witnesses against him.  Paragraph (a)(2) would authorize disclosure to the Department of Justice, an appropriate regulatory agency, a self regulatory organization, a state attorney general in connection with a criminal investigation, any appropriate state regulatory authority, the Public Company Accounting Oversight Board, or foreign securities and law enforcement authorities when it is necessary to achieve the purposes of the Exchange Act and to protect investors. With the exception of foreign securities and law enforcement authorities, each of these entities is subject to the confidentiality requirements set forth in Section 21F(h) of the Exchange Act. Since foreign securities and law enforcement authorities are not bound by these confidentiality requirements, the proposed rule states that the Commission may determine what assurances of confidentiality are appropriate prior to disclosing such information. Paragraph (a)(3) would authorize disclosure in accordance with the Privacy Act of 1974.
Because many whistleblowers may wish to provide information anonymously, paragraph (b) of the proposed rule states that anonymous submissions are permitted with certain specified conditions. Paragraph (b)(1) would require that anonymous whistleblowers be represented by an attorney and that the attorney's contact information be provided to the Commission at the time of the whistleblower's initial submission. The purpose of this requirement is to prevent fraudulent submissions and to facilitate communication and assistance between the whistleblower and the Commission's staff. Any whistleblower may be represented by counsel—whether submitting information anonymously or not.  Paragraph (b)(2) would require that anonymous whistleblowers and their counsel follow the required procedures outlined in Proposed Rule 21F-9. Paragraph (b)(3) would require that anonymous whistleblowers disclose their identity, pursuant to the procedures outlined in Proposed Rule 21F-10, before the Commission will pay any award. We emphasize that anonymous whistleblowers have the same rights and responsibilities as other whistleblowers under Section 21F of the Exchange Act and these proposed rules, unless expressly exempted.
Pursuant to Rule 102(e) of the Commission's Rules of Practice,  the Commission may deny the privilege of practicing before the Commission to any person who, after notice and opportunity for hearing, is found not to possess the requisite qualifications to represent others, to be lacking in character or integrity, to have engaged in unethical or improper professional conduct, or to have willfully violated or willfully aided and abetted the violation of any provision of the Federal securities laws or rules. Practice before the Commission is defined to include transacting any business with the Commission.  The Commission cautions attorneys that representation of whistleblowers will constitute practice before the Commission. Accordingly, misconduct by an attorney representing a whistleblower can result in the attorney being subject to disciplinary sanctions under any of the conditions set forth in Rule 102(e).
Request for Comment:
29. Because representation of whistleblowers constitutes practice before the Commission by an attorney, should the Commission consider adopting rules governing conduct by attorneys engaged in this type of practice? In some contexts, courts have disallowed excessive fee requests to attorneys for whistleblowers.  Should we adopt a rule regarding fees in the representation of whistleblower clients? Would such a rule encourage or discourage whistleblower submissions?
H. Proposed Rule 21F-8—Eligibility
Paragraph (a) of Proposed Rule 21F-8 makes clear that providing information in the form and manner required by these rules is a fundamental criterion of eligibility for a whistleblower award.  However, in order to prevent undue hardship, the Commission, in its sole discretion, may waive any of these procedural requirements based upon a showing of extraordinary circumstances.
The specific procedures required for submitting original information and making a claim for a whistleblower award are described in Proposed Rules 21F-9 through 21F-11. Proposed Rule 21F-8(b) contains several additional procedural requirements, which are designed to assist the Commission in evaluating and using the information provided. These include that the whistleblower, upon request, agree to provide explanations and other assistance including, but not limited to, providing all additional information in the whistleblower's possession that is related to the subject matter of his submission. In order to accommodate whistleblowers who elect to submit information anonymously, the staff will have discretion to make special arrangements to meet these procedural requirements.
Paragraph (b) of the proposed rule also would require whistleblowers, if requested by the staff, to provide testimony or other acceptable evidence relating to whether they are eligible for or otherwise satisfy any of the conditions for an award. Because Section 21F(c)(2) of the Exchange Act statutorily excludes certain persons from receiving whistleblower awards,  and Section 21F further conditions the grant of an award on factors that are unique to each individual whistleblower (e.g., that the individual act “voluntarily” and provide information that meets all the criteria of “original information”), this provision is designed to ensure that the staff has authority to confirm that whistleblowers meet all of the necessary eligibility criteria and conditions. It is anticipated that the staff may seek such confirming evidence at any point after a whistleblower files Form WB-DEC (as set forth in Proposed Rule 21F-9), including, without limitation, in connection with the claims review process described in Proposed Rules 21F-10 and 21F-11.
Finally, paragraph (b) of proposed rule 21F-8 would authorize the staff to require that a whistleblower enter into a confidentiality agreement in a form acceptable to the Whistleblower Office, including a provision that a violation may result in the whistleblower being ineligible for an award.  In some cases, a confidentiality agreement may be required if it becomes necessary or advisable for the staff to share non-public information with a whistleblower either during the course of the investigation (for example, to obtain the whistleblower's assistance in interpreting documents), or as part of the claims process set forth in Proposed Rules 21F-10 and 21F-11.
Paragraph (c) of Proposed Rule 21F-8 recites the categories of individuals who are ineligible for an award, many of which are set forth in Section 21F(c)(2). These include persons who are, or were at the time they acquired the original information, a member, officer, or employee of the Department of Justice, an appropriate regulatory agency, a self-regulatory organization, the Public Company Accounting Oversight Board, or any law enforcement organization; anyone who is convicted of a criminal violation that is related to the Commission action or to a related action for which the person otherwise could receive an award; any person who obtained the information provided to the Commission through an audit of a company's financial statements, and making a whistleblower submission would be contrary to the requirements of Section 10A of the Exchange Act, 15 U.S.C. 78j-1);  and any person who in his whistleblower submission, his other dealings with the Commission, or his dealings with another authority in connection with a related action, 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. Paragraph (c)(2) of Proposed Rule 21F-8 also would make foreign officials ineligible to receive a whistleblower award. The payment of awards to foreign officials could have negative repercussions for United States foreign relations, including creating a perception that the United States is interfering with foreign sovereignty, potentially undermining foreign government cooperation under existing treaties (including multilateral and bilateral mutual legal assistance treaties),  encouraging corruption, and raising concerns about protection of foreign officials who become whistleblowers. In order to prevent evasion of these exclusions, paragraph (c)(5) of the proposed rule also provides that persons who acquire information from ineligible individuals are ineligible for an award. In addition, paragraph (c)(6) would make any person ineligible who is the spouse, parent, child, or sibling of a member or employee of the Commission, or who resides in the same household as a member or employee of the Commission, in order to prevent the appearance of improper conduct by Commission employees.
Paragraph (d) of Proposed Rule 21F-8 reiterates that a determination that a whistleblower is ineligible to receive an award for any reason does not deprive the individual of the anti-retaliation protections set forth in Section 21F(h)(1) of the Exchange Act. 
Request for Comment.
30. We request comment on the manner of submission requirements set forth in Proposed Rule 21F-8(b). Are these requirements appropriate? Should there be different or additional requirements to supplement the submission of information as set forth in Proposed Rule 21F-9?
31. We also request comment on the ineligibility criteria set forth in Proposed Rule 21F-8(c). Are there other statuses or activities that should render an individual ineligible for a whistleblower award?
I. Proposed Rule 21F-9—Procedures for Submitting Original Information
The Commission proposes a two-step process for the submission of original information under the whistleblower award program. In general, the first step would require the submission of information either on a standard form or through the Commission's online database for receiving tips, complaints and referrals. The second step would require the whistleblower to complete a Whistleblower Office form, signed under penalties of perjury, in which the whistleblower would be required to make certain representations concerning the veracity of the information provided and the whistleblower's eligibility for a potential award. The use of standardized forms and the electronic database will greatly assist the Commission in managing and tracking the thousands of tips that it receives annually. This will also better enable the Commission to connect tips to each other so as to make better use of the information provided, and to connect tips to requests for payment under the whistleblower provisions. The purpose of requiring a sworn declaration is to help deter the submission of false and misleading tips and the resulting inefficient use of the Commission's resources. The requirement should also mitigate the potential harm to companies and individuals that may be caused by false or spurious allegations of wrongdoing.
1. Form TCR and Instructions
Paragraph (a) of Proposed Rule 21F-9 requires the submission of information in one of two ways. A whistleblower may submit the information electronically through the Commission's Electronic Data Collection System available on the Commission's Web site or by completing and submitting proposed Form TCR—Tip, Complaint or Referral.  Form TCR, and the instructions thereto, are designed to capture basic identifying information about a complainant and to elicit sufficient information to determine whether the conduct alleged suggests a violation of the Federal securities laws. Proposed items A1 through A3 of Form TCR would request the whistleblower's name and contact information, including a physical address, email address and telephone number. Proposed item A4 would ask the whistleblower to indicate his occupation. In instances where a whistleblower submits information anonymously, the identifying information for the whistleblower would not be required, but proposed Items B1 through B4 of the form would require the name and contact information of the whistleblower's attorney. This information may also be included in the case of whistleblowers whose identities are known and who are represented by counsel in the matter. Proposed Items C1 through C4 would request basic identifying information for the individual(s) or entity(ies) to which the complaint relates. Proposed Items D1 through D9 are designed to elicit details concerning the alleged securities violation. Proposed Items D1 and D2 would ask the whistleblower to provide the date of the occurrence and describe the nature of the complaint. Proposed Items D3 and D4 would ask whether the complaint relates to an entity of which the whistleblower is or was an officer, director, employee, consultant or contractor and, if so, whether the whistleblower has taken any prior action regarding the complaint, what actions were taken and the date on which the action(s) were taken. Proposed Item D5 would ask about the type of security or investment involved, the name of the issuer and the ticker symbol or CUSIP number, if applicable. Proposed Item D6 would ask the whistleblower to state in detail all facts pertinent to the alleged violation. Proposed Item D7 would ask for a description of all supporting materials in the whistleblower's possession and the availability and location of any additional supporting materials not in the whistleblower's possession. Item D8 would ask for an explanation of how the whistleblower obtained the information that supports the claim. Proposed Item D9 would provide the whistleblower with an opportunity to provide any additional information the whistleblower thinks may be relevant to his submission. The questions posed on proposed Form TCR are designed to elicit the minimum information required for the Commission to make a preliminary assessment concerning the likelihood that the alleged conduct suggests a violation of the securities laws. Moreover, the proposed instructions to Form TCR are designed to assist the whistleblower and facilitate the completion of the form.
2. Form WB-DEC and Instructions
In addition to submitting information in the form and manner required by paragraph (a), the Commission proposes in paragraph (b) of Proposed Rule 21F-9 to require that whistleblowers who wish to be considered for an award in connection with the information they provide to the Commission also complete and provide the Commission with proposed Form WB-DEC, Declaration Concerning Original Information Provided Pursuant to § 21F of the Securities Exchange Act of 1934. Proposed Form WB-DEC would require a whistleblower to answer certain threshold questions concerning the whistleblower's eligibility to receive an award. The form also would contain a statement from the whistleblower acknowledging that the information contained in the Form WB-DEC, as well as all information contained in the whistleblower's submission, is true, correct and complete to the best of the whistleblower's knowledge, information and belief. Moreover, the statement would acknowledge the whistleblower's understanding that the whistleblower may be subject to prosecution and ineligible for an award if, in the whistleblower's submission of information, other dealings with the Commission, or dealings with another authority in connection with a related action, the whistleblower knowingly and willfully makes any false, fictitious, or fraudulent statements or representations, or uses any false writing or document knowing that the writing or document contains any false, fictitious, or fraudulent statement or entry.
In instances where information is provided by an anonymous whistleblower, proposed paragraph (c) of Proposed Rule 21F-9 would require the attorney representing the whistleblower to provide the Commission with a separate Form WB-DEC certifying that the attorney has verified the identity of the whistleblower, and will retain the whistleblower's original, signed Form WB-DEC in the attorney's files. The proposed certification from counsel is an important element of the whistleblower program to help ensure that the Commission is working with whistleblowers whose identities have been verified by their counsel. The proposed certification process also would provide a mechanism for anonymous whistleblowers to be advised by their counsel regarding their preliminary eligibility for an award.
Proposed Items A1 through A3 of Form WB-DEC would request the whistleblower's name and contact information. In the case of submissions by an anonymous whistleblower, the form would require the name and contact information of the whistleblower's attorney instead of the whistleblower's identifying information in proposed Items B1 though B4. This section could also be completed in cases where a whistleblower's identity is known but the whistleblower is represented by an attorney in the matter. Proposed Items C1 through C3 would request information concerning the information submitted by the whistleblower to the SEC. Item C1 would require the whistleblower to indicate the manner in which the information was submitted to the Commission. Proposed Item C2 would ask for the Tip, Complaint or Referral (“TCR”) number assigned to the whistleblower's submission. The Commission expects that the TCR number would be generated automatically in cases where the whistleblower submits his information online through the Commission's Electronic Data Collection System or, in the case of hard copy submissions, would be provided to the whistleblower in a written confirmation sent by the Commission staff. In instances where a whistleblower submits both forms in hard copy and thus does not have access to the TCR number at the time of submission, the forms would be linked together by virtue of having been included in the same mailing. Proposed Items C3 would ask a whistleblower to identify any communications the whistleblower or his counsel may have had with the Commission concerning the matter since submitting the information. Proposed Item C4 asks whether the whistleblower has provided the same information being provided to the Commission to any other agency or organization and, if so, requests details concerning the submission, including the name and contact information for the point of contact at the agency or organization, if known. Proposed Items D1 through D9 would require the whistleblower to make certain representations concerning the whistleblower's eligibility for an award. Finally, the form would require the sworn declarations from the whistleblower and the whistleblower's counsel discussed above. In proposed Item E, the whistleblower would be required to declare under penalty of perjury that the information contained on Form WB-DEC, and all information submitted to the SEC is true, correct and complete to the best of the whistleblower's knowledge, information and belief. In addition, the whistleblower would acknowledge his understanding that he may be subject to prosecution and ineligible for a whistleblower award if, in the whistleblower's submission of information, other dealings with the SEC, or dealings with another authority in connection with a related action, the whistleblower knowingly and willfully makes any false, fictitious, or fraudulent statements or representations, or uses any false writing or document knowing that the writing or document contains any false, fictitious, or fraudulent statement or entry.
The counsel certification in proposed Item F would require an attorney for an anonymous whistleblower to certify that the attorney has verified the identity of the whistleblower who completed Form WB-DEC in connection with the information submitted to the SEC by viewing the whistleblower's valid, unexpired government issued identification, that the attorney has reviewed the whistleblower's Form WB-DEC for completeness and accuracy, and that the attorney will retain an original, signed copy of the Form WB-DEC completed by the whistleblower in his or her records.
As explained above, the Commission proposes to allow two alternative methods of submission of a whistleblower's information. A whistleblower would have the option of submitting the information electronically through the Commission's Electronic Data Collection System or by sending or faxing Form TCR to the Whistleblower Office.
Form WB-DEC could be submitted electronically, in accordance with instructions set forth on the Commission's Web site or, alternatively, by mailing or faxing the form to the Whistleblower Office.
3. Perfecting Whistleblower Status for Submissions Made Before Effectiveness of the Rules
As previously discussed, Section 924(b) of Dodd-Frank states that information provided to the Commission in writing by a whistleblower after the date of enactment but before the effective date of these proposed rules retains the status of original information. The Commission has already received numerous tips from potential whistleblowers after the date of enactment of Dodd-Frank. Proposed Rule 21F-9(d) would provide a mechanism by which whistleblowers who fall into this category could perfect their status as whistleblowers under the Commission's award program once final rules are adopted. Paragraph (d)(1) requires a whistleblower who provided original information to the Commission in a format or manner other than that required by paragraph (a) of Rule 21F-9 to either submit the information electronically through the Commission's Electronic Data Collection System or to submit a completed Form TCR within one hundred twenty (120) days of the effective date of the proposed rules and to otherwise follow the procedures set forth in paragraph (b) of Proposed Rule 21F-9. If the whistleblower provided the original information to the Commission in the format or manner required by paragraph (a) of Rule 21F-9, paragraph (d)(2) would require the whistleblower to submit Form WB-DEC within one hundred twenty (120) days of the effective date of the proposed rules in the manner set forth in paragraph (b) of Proposed Rule 21F-9.
Request for Comment:
32. Although the Commission is proposing alternative methods of submission, we expect that electronic submissions would dramatically reduce our administrative costs, enhance our ability to evaluate tips (generally and using automated tools), and improve our efficiency in processing whistleblower submissions. Accordingly, we solicit comment on whether it would be appropriate to eliminate the fax and mail option and require that all submissions be made electronically. Would the elimination of submissions by fax and mail create an undue burden for some potential whistleblowers?
33. Is there other information that the Commission should elicit from whistleblowers on Proposed Forms TCR and WB-DEC? Are there categories of information included on these forms that are unnecessary, or should be modified?
34. Is the requirement that an attorney for an anonymous whistleblower certify that the attorney has verified the whistleblower's identity and eligibility for an award appropriate? Is there an alternative process the Commission should consider that would accomplish its goal of ensuring that it is communicating with a legitimate whistleblower?
35. Is the Commission's proposed process for allowing whistleblowers 120 days to perfect their status in cases where the whistleblower provided original information to the Commission in writing after the date of enactment of Dodd-Frank but before adoption of the proposed rules reasonable? Should the period be made shorter (e.g., 30 or 60 days) or longer (e.g., 180 days)?
36. Are there any ways we can streamline and make the required procedures more user-friendly?
J. Proposed Rule 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
Proposed Rule 21F-10 describes the steps a whistleblower would be required to follow in order to make a claim for an award in relation to a Commission action. In addition, the rule describes the Commission's proposed claims review process, which includes the proposed administrative appeals process.
The following flow chart represents a general overview of the proposed process:
The proposed process would begin with the publication of a “Notice of a Covered Action” (“Notice”) on the Commission's Web site. Whenever a judicial or administrative action brought by the Commission results in the imposition of monetary sanctions exceeding $1,000,000, the Whistleblower Office will cause this Notice to be published on the Commission's Web site subsequent to the entry of a final judgment or order in the action that by itself, or collectively with other judgments or orders previously entered in the action, exceeds the $1,000,000 threshold. If the monetary sanctions are obtained without a judgment or order—as in the case of a contribution made pursuant to Section 308(b) of the Sarbanes-Oxley Act of 2002—the Notice would be published within thirty (30) days of the deposit of monetary sanctions into a disgorgement or other fund pursuant to Section 308(b) that causes total monetary sanctions in the action to exceed $1,000,000. The Commission's proposed rule requires claimants to file their claim for an award within sixty (60) days of the date of the Notice.  A claimant's failure to timely file a request for a whistleblower award would bar that individual later seeking a recovery.  The Commission anticipates that, at the time a Notice of Covered Action is posted, the staff will also attempt to contact persons who have filed a Form WB DEC in relation to the case, in order to give them additional notice of the opportunity to submit a claim for award.
Paragraph (b) of Proposed Rule 21F-10 describes the procedure for making a claim for an award. Specifically, a claimant would be required to submit a claim for an award on proposed Form WB-APP, Application for Award for Original Information Provided Pursuant to § 21F of the Securities Exchange Act of 1934. Proposed Form WB-APP, and the instructions thereto, will elicit information concerning a whistleblower's eligibility to receive an award at the time the whistleblower files his claim. The purpose of the form is, among other things, to provide an opportunity for the whistleblower to “make his case” for why he is entitled to an award by describing the information and assistance he has provided and its significance to the Commission's successful action. Proposed Items A1 through A3 require the claimant to provide basic identifying information, including first and last name and contact information. Proposed Items B1 through B4 would request the name and contact information for the whistleblower's attorney, if applicable. Proposed Items C1 and C2 would request information concerning the original tip or complaint underlying the claim, including the TCR number, the date the information was submitted and the subject of the tip, complaint or referral. Proposed Items D1 through D3 would request information concerning the Notice of Covered Action to which the claim relates, including the date of the notice, notice number, and the name and case number of the matter to which the notice relates. Proposed Items E1 through E3 would request information concerning related actions. A whistleblower would be required to complete Section D in cases where the whistleblower's claim was submitted in connection with information submitted to another agency or organization in a related action (the questions pertaining to related actions are explained in the discussion of proposed Rule 21F-11, below). Proposed Items F1 through F9 would require the claimant to make certain representations concerning the claimant's eligibility to receive an award at the time the claim is made. In Item G, a claimant may set forth the grounds for the claimant's belief that he is entitled to an award in connection with the information submitted to the Commission, or to another agency or organization in a related action. Finally, item H would contain a declaration, to be signed by the claimant, certifying that the information contained on the form is true, correct and complete to the best of the claimant's knowledge, information and belief. The declaration would further acknowledge the claimant's understanding that he may be subject to prosecution and ineligible for a whistleblower award for knowingly and willfully making any false, fictitious, or fraudulent statements or representations in his or her submission or dealings with the SEC or other authority.
Paragraph (b) of Proposed Rule 21F-10 provides that a claim on Form WB-APP, including any attachments, must be received by the Whistleblower Office within sixty (60) days of the date of the Notice of Covered Action in order to be considered for an award.
Paragraph (c) requires a whistleblower who submitted information to the Commission anonymously to disclose his identity to the Commission on proposed Form WB-APP and to verify his identity in a form and manner that is acceptable to the Whistleblower Office prior to the payment of an award. This requirement is derived from Subsection 21F(d)(2)(B) of the Exchange Act. 
Paragraph (d) of Proposed Rule 21F-10 describes the Commission's claims review process. The claims review process would begin 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.
Under the proposed process, the Whistleblower Office and designated Commission staff (defined in Proposed Rule 21F-10 as the “Claims Review Staff”)  would evaluate all timely whistleblower award claims submitted on Form WB-APP. In connection with this process, the Whistleblower Office could require that claimants provide additional information relating to their eligibility for an award or satisfaction of any of the conditions for an award, as set forth in Proposed Rule 21F-8(b).  Following that evaluation, the Whistleblower Office would send any claimant 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.
The proposed rule would allow a claimant the opportunity to contest the Preliminary Determination made by the Claims Review Staff. Under paragraph (e) of Proposed Rule 21F-10, the claimant could take any of the following steps:
- Within thirty (30) days of the date of the Preliminary Determination, the claimant may request that the Whistleblower Office make available for the claimant's review the materials that formed the basis of the Claims Review Staff's Preliminary Determination. The Whistleblower Office would make these materials available to the claimant subject to any redactions necessary to comply with any statutory restrictions or protect the Commission's law enforcement and regulatory functions. The Whistleblower Office also could require the claimant to sign a confidentiality agreement (as described in Rule 21F-8) prior to providing these materials.
- Within thirty (30) days of the date of the Preliminary Determination, or if a request to review materials is made pursuant to paragraph (1) above, then within thirty (30) days of the Whistleblower Office making those materials available for the claimant's review, a claimant may submit a written response to the Whistleblower Office setting forth the grounds for the claimant's objection to either the denial of an award or the proposed amount of an award. The claimant may also include documentation or other evidentiary support for the grounds advanced in his response.
- Within thirty (30) days of the date of the Preliminary Determination, the claimant may request a meeting with the Whistleblower Office. However, such meetings are not required and the Whistleblower Office may in its sole discretion decline the request.
Paragraph (f) of Proposed Rule 21F-10 makes clear that if a claimant fails to submit a timely response pursuant to paragraph (e), then the Preliminary Determination of the Claims Review Staff would be deemed the Final Order of the Commission (except where the Preliminary Determination recommended an award, in which case the Preliminary Determination will be deemed a Proposed Final Determination, which would make it subject to review by the Commission under paragraph (h). In addition, a claimant's failure to submit a timely response to a Preliminary Determination where the determination was to deny an award would constitute a failure to exhaust the claimant's administrative remedies, and the claimant would be prohibited from pursuing a judicial appeal. 
Paragraph (g) of Proposed Rule 21F-10 describes the procedure in cases where a claimant submits a timely response pursuant to Paragraph (f). In such cases, the Claims Review Staff would consider the issues and grounds advanced in the claimant's response, along with any supporting documentation provided by the claimant, and would prepare a Proposed Final Determination. Paragraph (h) provides that the Whistleblower Office would notify the Commission of the Proposed Final Determination, but would not make the Proposed Final Determination public. Within thirty (30) days thereafter, any Commissioner would be able to request that the Proposed Final Determination be reviewed by the Commission. If no Commissioner requests such a review within the 30-day period, then the Proposed Final Determination would become the Final Order of the Commission. In the event a Commissioner requests a review, the Commission would review the record that the staff relied upon in making its determination, including the claimant's previous submissions to the Whistleblower Office. On the basis of its review of the record, the Commission would issue its Final Order, which the Commission's Secretary will provide to the claimant.
The objective of this administrative appeals process is to provide a transparent award determination process and provide whistleblowers full opportunity to make a written statement to the Commission for its consideration when it makes eligibility and award determinations. The proposed administrative process would enable a whistleblower to appeal to the Commission a preliminary determination by the Whistleblower Office concerning the percentage amount of an award; however, this process would in no way limit the Commission's discretion to make a determination with respect to the amount of an award. Under Section 21F(f) of the Exchange Act, determinations of the amount of an award are not appealable to the courts when the Commission has followed the statutory requirement to award between 10 and 30 percent of the monetary sanctions collected.
K. Proposed Rule 21F-11—Procedures for Determining Awards Based Upon a Related Action
Proposed Rule 21F-3(b) discussed above explains that the Commission is required to pay an award on amounts collected in certain related actions. Proposed Rule 21F-11 sets forth the procedures for determining awards based upon related actions. Paragraph (a) informs a whistleblower who is eligible to receive an award following a Commission action that results in monetary sanctions totaling more than $1,000,000 that the whistleblower may also be eligible to receive an award based on the monetary sanctions that are collected from a related action.
Paragraph (b) of Proposed Rule 21F-11 describes the procedures for making a claim for an award in a related action. The process essentially mirrors the procedure for making a claim in connection with a Commission action and requires the claimant to submit the claim on Form WB-APP. In addition to the questions previously described in our discussion of proposed Rule 21F-10, the claimant in a related action would be required to complete Section D of proposed form WB-APP. Proposed Items D1 through D4 request the name of the agency or organization to which the whistleblower provided the information and the date the information was provided, the name and telephone number for a contact at the agency or organization, if available, and the case name, action number and date the related action was filed.
Paragraph (b) of Proposed Rule 21F-11 sets forth the deadline by which a claimant must file his or her Form WB-APP in a related action. Specifically, under proposed paragraph (b)(1), if a final order imposing monetary sanctions has been entered in a related action at the time the claimant submits the claim for an award in connection with a Commission action, the claimant would be required to submit the claim for an award in that related action on the same Form WB-APP used for the Commission action. Under proposed paragraph (b)(2), if a final order imposing monetary sanctions in a related action has not been entered at the time the claimant submits a claim for an award in connection with a Commission action, then the claimant would be required to submit the claim on Form WB-APP within sixty (60) days of the issuance of a final order imposing sanctions in the related action.
The Whistleblower Office may request additional information from the claimant in connection with the claim for an award in a related action to demonstrate that the claimant 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, and that this information led to the successful enforcement of the related action. In addition, the Whistleblower Office may, in its discretion, seek assistance and confirmation from the other agency in making this determination.
Paragraphs (d) through (i) of Proposed Rule 21F-11 describe the Commission's claims review process in related actions. The Commission proposes to utilize the same claims review process in related actions that it will utilize in connection with claims submitted in connection with a covered Commission action.
The following represents an overview of the proposed process:
L. Proposed Rule 21F-12—Appeals
Section 21F of the Exchange Act provides for certain rights of appeal of orders of the Commission with respect to whistleblower awards.  Paragraph (a) of Proposed Rule 21F-12 tracks this provision and describes claimants' appeal rights. A decision of the Commission regarding the amount of an award is not appealable when the Commission has followed the statutory mandate to award between 10 and 30 percent of the monetary sanctions collected. A decision regarding whether or to whom to make an award may be appealed to an appropriate court of appeals within 30 days after the Commission issues its final decision. Under Section 25(a)(1) of the Exchange Act,  appeals of final orders of the Commission entered pursuant to the Exchange Act may be made to the United States Court of Appeals for the District of Columbia Circuit, or to the circuit where the aggrieved person resides or has his principal place of business.
Paragraph (b) of Proposed Rule 21F-12 designates the materials that shall be included in the record on any appeal. They include the Whistleblower Office's Preliminary Determination, any materials submitted by the claimant or claimants (including the claimant's Forms TCR, WB-DEC, WB-APP, and materials filed in response to the Preliminary Determination), and any other materials that supported the Final Order of the Commission, with the exception of any internal deliberative process materials that are prepared exclusively to assist the Commission in deciding the claim, such as the staff's Proposed Final Determination in the event it does not become the Final Order.
M. Proposed Rule 21F-13—Procedures Applicable to Payment of Awards
Proposed Rule 21F-13 (a) addresses the timing for payment of an award to a whistleblower. Any award made pursuant to the rules would be paid from the Securities and Exchange Commission Investor Protection Fund (the “Fund”) established by Section 21F(g) of the Exchange Act.  Paragraph (b) provides that a recipient of a whistleblower award would be entitled to payment on the award only to the extent that a monetary sanction is collected in the Commission action or in a related action upon which the award is based. This requirement is derived from Section 21F(b)(1) of the Exchange Act,  which provides that an award is based upon the monetary sanctions collected in the Commission action or related action.
Paragraph (c) states that any payment of an award for a monetary sanction collected in a Commission action would be made following the later of either the completion of the appeals process for all whistleblower award claims arising from the Notice of Covered Action for that action, or the date on which the monetary sanction is collected. Likewise, the payment of an award for a monetary sanction collected in a related action would be made following the later of either the completion of the appeals process for all whistleblower award claims arising from the related action, or the date on which the monetary sanction is collected. This provision is intended to cover situations where a single action results in multiple whistleblowers claims. Under this scenario, if one whistleblower appeals a Final Determination of the Commission denying the whistleblower's claim for an award, the Commission would not pay any awards in the action until that whistleblower's appeal has been concluded, because the disposition of that appeal could require the Commission to reconsider its determination and thereby could affect all payments for that action.
Paragraph (d) of Proposed Rule 21F-13 describes how the Commission would address situations where there are insufficient amounts available in the Fund to pay an award to a whistleblower or whistleblowers within a reasonable period of time of when payment should otherwise be made. In this situation, the whistleblower or whistleblowers would be paid when amounts become available in the Fund, subject to the terms set forth in proposed paragraphs (d)(1) and (d)(2). Under proposed paragraph (d)(1), where multiple whistleblowers are owed payments from the Fund based on awards that do not arise from the same Notice of Covered Action or related action, priority in making payment on these awards would be determined based upon the date that the collections for which the whistleblowers are owed payments occurred. If two or more of these collections occur on the same date, those whistleblowers owed payments based on these collections would be paid on a pro rata basis until sufficient amounts become available in the Fund to pay their entire payments. Under proposed paragraph (d)(2), where multiple whistleblowers are owed payments from the Fund based on awards that arise from the same Notice of Covered Action or related action, they would share the same payment priority and would be paid on a pro rata basis until sufficient amounts become available in the Fund to pay their entire payments.
As noted above, whistleblower awards will be paid solely from the Fund. Section 21F(g)(3) of the Exchange Act establishes the mechanism for funding the Fund. In most circumstances, the Fund will be funded with monetary sanctions that are collected by the Commission in its judicial and administrative actions and that are not distributed to victims of a violation of the securities laws underlying such actions. However, if the balance of the Fund is not sufficient to satisfy a whistleblower award, the law requires that there be deposited into or credited to the Fund an amount equal to the unsatisfied portion of the award from any monetary sanction collected by the Commission in the Commission action on which the award is based. Therefore, it is possible for there to be circumstances in which monies that otherwise might have been distributed to victims pursuant to a Commission action could be required to be deposited into or credited to the Fund to pay a whistleblower award. In this situation, there would be a tension between the competing interests of paying an award to a whistleblower (as provided for in Section 21F) and compensating victims with monies collected from wrongdoers (as recognized in Section 308 of the Sarbanes-Oxley Act).
Request for Comment:
37. We request comment on the significance of the tension between the interests of whistleblowers and victims in this circumstance, the likelihood that this situation would arise, and whether there is anything that the Commission can or should do to mitigate this tension.
N. Proposed Rule 21F-14—No Amnesty
Proposed Rule 21F-14 provides notice that the provisions of Section 21F of the Exchange Act do not provide amnesty to individuals who provide information to the Commission relating to a violation of the securities laws. Whistleblowers who have not participated in misconduct will of course not need amnesty. However, some whistleblowers who provide original information that significantly aids in detecting and prosecuting sophisticated securities fraud schemes may themselves be participants in the scheme who could be subject to Commission enforcement actions. These individuals will not be immune from prosecution. Rather, the Commission will analyze the unique facts and circumstances of each case in accordance with its Policy Statement Concerning Cooperation by Individuals in its Investigations and Related Enforcement Actions, 17 CFR 202.12, to determine whether, how much, and in what manner to credit cooperation by whistleblowers who have participated in misconduct. This Policy Statement provides an incentive to report information to the Commission notwithstanding that the whistleblower program does not provide amnesty.
O. Proposed Rule 21F-15—Awards to Whistleblowers Who Engage in Culpable Conduct
Proposed Rule 21F-15 states that in determining whether the required $1,000,000 threshold has been satisfied for purposes of making an award to a whistleblower, the Commission will not count any monetary sanctions that the whistleblower is ordered to pay, or that are ordered against any entity whose liability is based substantially on conduct that the whistleblower directed, planned, or initiated. The Commission also will not add those amounts to the total monetary sanctions collected in the action for purposes of calculating any payment to the culpable individual. The rationale for this limitation is to prevent wrongdoers from financially benefiting by, in essence, blowing the whistle on their own misconduct. Because the common understanding of a whistleblower is one who reports misconduct by another person, we are preliminarily of the view that it would not be consistent with the purposes of the statute to pay awards to persons based on monetary sanctions arising from their own misconduct. A logical corollary to this principle is that a whistleblower also should not be paid an award based on monetary sanctions paid by an entity whose liability resulted from the whistleblower's conduct.
Request for Comment: We request comment on whether the limitations provided in Proposed Rule 21F-15 are appropriate.
38. For example, in determining whether the $1,000,000 threshold for a covered action has been met, should we exclude monetary sanctions ordered against an entity whose liability is based substantially on conduct that the whistleblower directed, planned, or initiated? Should we exclude those amounts from monetary sanctions collected for purposes of making payments to whistleblowers?
39. Is the proposed exclusion of monetary sanctions ordered against an entity whose liability is based substantially on conduct that the whistleblower directed, planned, or initiated appropriate? Is the proposed exclusion sufficient to permit the Commission to deny awards in cases where the payment of an award would be against public policy? Should we instead exclude any wrongdoer from being eligible to receive an award categorically, or in particular circumstances? Should an individual's level of culpability be considered as a factor in determining whether the person is eligible for an award? Are there other ways in which we should limit the payment of awards to culpable individuals?
P. Proposed Rule 21F-16—Staff Communications With Whistleblowers
Proposed Rule 21F-16(a) provides that no person may take any action to impede a whistleblower from communicating directly with the Commission staff about a potential securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement (other than agreements dealing with information covered by § 240.21F-4(b)(4)(i) & (ii) of this chapter related to the legal representation of a client) with respect to such communications. As noted, the Congressional purpose underlying Section 21F of the Exchange Act is to encourage whistleblowers to report potential violations of the securities laws by providing financial incentives, prohibiting employment-related retaliation, and providing various confidentiality guarantees. Efforts to impede a whistleblower's direct communications with Commission staff about a potential securities law violation, however, would appear to conflict with this purpose. For example, an attempt to enforce a confidentiality agreement against a whistleblower to prevent his or her communications with Commission staff about a potential securities law violation could inhibit those communications even when such an agreement would be legally unenforceable,  and would undermine