Document ID: SEC-2011-0813-0001
Agency: sec
Document Type: Rule
Title: Whistleblower Provisions of the Securities Exchange Act
Posted Date: 2011-06-13T04:00Z

[Federal Register Volume 76, Number 113 (Monday, June 13, 2011)]
[Rules and Regulations]
[Pages 34300-34384]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13382]

[[Page 34299]]

Vol. 76

Monday,

No. 113

June 13, 2011

Part II

Securities and Exchange Commission

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17 CFR Parts 240 and 249

Securities Whistleblower Incentives and Protections; Final Rule

  Federal Register / Vol. 76 , No. 113 / Monday, June 13, 2011 / Rules 
and Regulations  

[[Page 34300]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-64545; File No. S7-33-10]
RIN 3235-AK78

Securities Whistleblower Incentives and Protections

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Final rule.

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SUMMARY: The Commission is adopting rules and forms to implement 
Section 21F of the Securities Exchange Act of 1934 (``Exchange Act'') 
entitled ``Securities Whistleblower Incentives and Protection.'' 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 who provide the Commission 
with information about possible securities violations.

DATES: Effective Date: August 12, 2011.

FOR FURTHER INFORMATION CONTACT: Sean X. McKessy, Securities and 
Exchange Commission, Division of Enforcement, 100 F Street, NE., 
Washington, DC 20549, Tel. (202) 551-4790, Fax (703) 813-9322.

SUPPLEMENTARY INFORMATION: We are adopting new rules 21F-1 through 21F-
17, and new Forms TCR and WB-APP, under the Securities Exchange Act of 
1934.

Table of Contents

I. Background and Summary
II. Description of the Rules
    A. Rule 21F-1--General
    B. Rule 21F-2--Definition of a Whistleblower
    C. Rule 21F-3--Payment of Award
    D. Rule 21F-4--Other Definitions
    1. Voluntary Submission of Information
    2. Original Information
    3. Definition of Independent Knowledge
    4. Definition of Independent Analysis
    5. Rules 21F-4(b)(i) Through (vi)--Exclusions From Independent 
Knowledge and Independent Analysis
    (a) Attorney-client privilege and other attorney conduct
    (b) Responsible Company Personnel, Compliance Processes and 
Independent Public Accountants
    (i) Proposed Rule 21F-4(b)(4)(iii)
    (ii) Proposed Rules 21F-4(b)(iv) and (v)
    (iii) Final Rules 21F-4(b)(4)(iii) and (v)
    a. Rules 21F-4(b)(4)(iii)(A) Through (C)
    b. Rule 21F-4(b)(4)(iii)(D)
    c. Rule 21F-4(b)(4)(v)
    (c) Conviction for Violations of Law
    (d) Rule 21F-4(b)(4)(vi)--Information Obtained From Excluded 
Persons
    6. Original Source
    7. Original Source; Additional Information
    8. Original Source: Lookback
    9. Information That Leads to a Successful Enforcement
    10. Action
    11. Monetary Sanctions
    12. Appropriate Regulatory Agency
    13. Appropriate Regulatory Authority
    14. SRO
    E. Rule 21F-5--Amount of Award
    F. Rule 21F-6--Criteria for Determining Amount of Award
    G. Rule 21F-7--Confidentiality of Submissions
    H. Rule 21F-8--Eligibility
    I. Rule 21F-9--Procedures for Submitting Original Information
    J. Rule 21F-10--Procedures for Making a Claim Based on a 
Successful Commission Action
    K. Rule 21F-11--Procedure for Making a Claim Based on a 
Successful Related Action
    L. Rules 21F-12 & 13--Materials That May Be Used as the Basis 
for an Award Determination and That May Comprise the Record on 
Appeal; Right of Appeal
    M. Rule 21F-14--Procedures Applicable to Payment of Awards
    N. Rule 21F-15--No Amnesty
    O. Rule 21F-16--Awards to Whistleblowers Who Engage in Culpable 
Conduct
    P. Rule 21F-17--Staff Communications With Whistleblowers
III. Paperwork Reduction Act
IV. Economic Analysis
V. Regulatory Flexibility Act Certification
VI. Statutory Authority

I. Background and Summary

    Section 922 of Dodd-Frank added new Section 21F to the Exchange 
Act, entitled ``Securities Whistleblower Incentives and Protection.'' 
\1\ Section 21F directs that the Commission pay awards, subject to 
certain limitations and conditions, to whistleblowers who voluntarily 
provide the Commission with original information about a violation of 
the securities laws that leads to the successful enforcement of an 
action brought by the Commission that results in monetary sanctions 
exceeding $1,000,000.
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    \1\ Public Law 111-203, Sec.  922(a), 124 Stat 1841 (2010).
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    On November 3, 2010, we proposed Regulation 21F to implement new 
Section 21F.\2\ The rules contained in proposed Regulation 21F defined 
certain terms critical to the operation of the whistleblower program, 
outlined the procedures for applying for awards and the Commission's 
procedures for making decisions on claims, and generally explained the 
scope of the whistleblower program to the public and to potential 
whistleblowers.
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    \2\ Proposed Rules for Implementing the Whistleblower Provisions 
of Section 21F of the Securities and Exchange Act of 1934, Release 
No. 34-63237 (``Proposing Release'').
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    We received more than 240 comment letters and approximately 1300 
form letters on the proposal.\3\ Commenters included individuals, 
whistleblower advocacy groups, public companies, corporate compliance 
personnel, law firms and individual lawyers, academics, professional 
associations, nonprofit organizations and audit firms. The comments 
addressed a wide range of issues. Many commenters provided views on an 
issue we highlighted in the proposing release--the interplay of the 
whistleblower program and company internal compliance processes. 
Commenters also expressed a range of views on other significant issues, 
including the proposed exclusions from award eligibility for certain 
categories of individuals or types of information, the availability of 
awards to culpable whistleblowers, the procedures for submitting 
information and making a claim for an award, and the application of the 
statutory anti-retaliation provision.
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    \3\ The public comments we received are available at http://www.sec.gov/comments/s7-33-10/s73310.shtml. In addition, to 
facilitate public input on the Dodd-Frank Act, the Commission 
provided a series of e-mail links, organized by topic, on its Web 
site at http://www.sec.gov/spotlight/regreformcomments.shtml.
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    As discussed in more detail below, we have carefully considered the 
comments received on the proposed rules in fashioning the final rules 
we adopt today. We have made a number of revisions and refinements to 
the proposed rules. Taken together, we believe these changes will 
better achieve the goals of the statutory whistleblower program and 
advance effective enforcement of the Federal securities laws. The 
revisions of each proposed rule are described in more detail throughout 
this release, but the following are among the most significant:
     Internal Compliance: A significant issue discussed in the 
Proposing Release was the impact of the whistleblower program on 
companies' internal compliance processes. While we did not propose a 
requirement that whistleblowers report through internal

[[Page 34301]]

compliance processes as a prerequisite to eligibility for an award, we 
requested comment on this topic, and we included in the proposed rules 
several other elements designed to encourage potential whistleblowers 
to utilize internal compliance. Commenters were sharply divided on the 
issues raised by this topic. After considering these different 
viewpoints, we have determined not to include a requirement that 
whistleblowers report violations internally, but we have made 
additional changes to the rules to further incentivize whistleblowers 
to utilize their companies' internal compliance and reporting systems 
when appropriate.
    [cir] With respect to the criteria for determining the amount of an 
award, the final rules expressly provide: first, that a whistleblower's 
voluntary participation in an entity's internal compliance and 
reporting systems is a factor that can increase the amount of an award; 
and, second, that a whistleblower's interference with internal 
compliance and reporting is a factor that can decrease the amount of an 
award.
    [cir] The final rules contain a provision under which a 
whistleblower can receive an award for reporting original information 
to an entity's internal compliance and reporting systems, if the entity 
reports information to the Commission that leads to a successful 
Commission action. Under this provision, all the information provided 
by the entity to the Commission will be attributed to the 
whistleblower, which means that the whistleblower will get credit--and 
potentially a greater award--for any additional information generated 
by the entity in its investigation.
    [cir] The final rule extends the time for a whistleblower to report 
to the Commission after first reporting internally and still be treated 
as if he or she had reported to the Commission at the earlier reporting 
date. We proposed a ``lookback period'' of 90 days after the 
whistleblower's internal report, but in response to comments, we are 
extending this period to 120 days in the final rules.
     Procedures for Submitting Information and Claims: The 
proposed rules set forth a two-step process for submitting information, 
which required the submission of two different forms. In response to 
comments that urged us to streamline the procedures for submitting 
information, we have adopted a simpler process, combining the two 
proposed forms into a single Form TCR that would be submitted by a 
whistleblower under penalty of perjury. With respect to the claims 
application process, we have made one section of that form optional to 
make the form less burdensome. We also describe in greater detail below 
several other features of the process to assist whistleblowers that we 
expect will become part of the Office of the Whistleblower's standard 
practice.
     Aggregation of smaller actions to meet the $1,000,000 
threshold: The proposed rules stated that awards would be available 
only when the Commission had successfully brought a single judicial or 
administrative action in which it obtained monetary sanctions of more 
than $1,000,000. In response to comments, we have provided in the final 
rules that, for purposes of making an award, we will aggregate two or 
more smaller actions that arise from the same nucleus of operative 
facts. This will make whistleblower awards available in more cases.
     Exclusions from award eligibility for certain persons and 
information: The proposed rules set forth a number of exclusions from 
eligibility for certain categories of persons and information. In 
response to comments suggesting that some of these exclusions were 
overly broad or unclear, we have revised a number of these provisions. 
Most notably, the final rules provide greater clarity and specificity 
about the scope of the exclusions applicable to senior officials within 
an entity who learn information about misconduct in connection with the 
entity's processes for identifying, reporting, and addressing possible 
violations of law.

II. Description of the Rules

A. Rule 21F-1--General

    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 Office of the Whistleblower administers 
the whistleblower program. In addition, the 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. Rule 21F-2--Definition of a Whistleblower

a. Proposed Rule
    As proposed, Rule 21F-2(a) defined 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. 
Under the proposed rule, a company or another entity could not qualify 
as a whistleblower.
    Paragraph (b) of the proposed rule stated that the anti-retaliation 
protections set forth in Section 21F(h)(1) of the Exchange Act would 
apply irrespective of whether a whistleblower satisfied all the 
procedures and conditions to qualify for an award under the 
Commission's whistleblower program. Similarly, the protections against 
retaliation applied to any individual who provided information to the 
Commission about a potential violation of the securities laws.
    Paragraph (c) of the proposed rule stated that, to be eligible 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.
b. Comments Received
    Commenters advanced a number of suggestions to refine the 
definition of ``whistleblower.'' Many commenters agreed that the 
definition of ``whistleblower'' should not turn on whether a violation 
of the securities laws is ultimately adjudged to have occurred,\4\ but 
expressed differing opinions on our proposal to use the term 
``potential violation.'' One commenter agreed that the whistleblower 
definition should include the term ``potential violation'' because this 
would allow broad application of the anti-retaliation measures in 
Section 21F.\5\ Several other commenters recommended that the term 
``potential violation'' should be coupled with a requirement that the 
individual have a ``reasonable belief'' or ``good faith belief'' that 
the information relates to a securities law violation.\6\ Some 
commenters suggested instead of the term ``potential violation,'' we 
should use the terms ``probable violation,'' ``likely violation,'' or 
``claimed violation.'' \7\
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    \4\ See, e.g., letters from Committee on Federal Regulation of 
Securities, Section of Business Law, American Bar Association 
(``ABA''); Project of Government Oversight (``POGO''); Jones Day; 
Wells Fargo Advisors, LLC (``Wells Fargo''); and Society of 
Corporate Governance Professionals.
    \5\ See letter from POGO.
    \6\ See, e.g., letters from Jones Day; Wells Fargo; and Morgan 
Lewis. As discussed further below in the text, commenters asserted 
that a ``reasonable belief'' or ``good faith'' standard is necessary 
to prevent employees from making bad-faith allegations of 
retaliation.
    \7\ See, e.g., letters from ABA; Goodwin Procter.
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    On other aspects of the definition of whistleblower, one commenter 
recommended that we clarify that a ``violation of the securities laws'' 
relates only to the Federal securities laws and not to violations of 
state or foreign

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securities laws.\8\ A few commenters recommended that a whistleblower 
be limited to a person who provided information relating to a 
``material'' violation of the securities laws.\9\
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    \8\ See letter from ABA.
    \9\ See, e.g., letters from ABA; and Society of Corporate 
Secretaries and Governance Professionals (``Society of Corporate 
Secretaries'').
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    Two commenters disagreed with the proposed rule's limiting 
whistleblower status to natural persons,\10\ suggesting that non-
governmental organizations and/or worker representatives, including 
labor unions, should be permitted to bring claims.\11\
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    \10\ See, e.g., joint letter from Voices for Corporate 
Responsibility, Change to Win, National Employment Lawyers 
Association, Government Accountability Project (``VOICES''); and 
Mike G. McCluir.
    \11\ See letter from VOICES.
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    A number of commenters responded to our request for comment on 
whether we should limit the definition of ``whistleblower'' to a person 
who provides information regarding violations of the securities laws 
``by another person''--some favoring this,\12\ others opposing it.\13\ 
Several of the commenters recommended that we limit the whistleblower 
definition based on an individual's relative culpability for the 
reported violation. For example, some commenters stated that the 
definition of ``whistleblower'' should cover only individuals who 
report violations by another person, and who did not participate in or 
facilitate the violations.\14\
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    \12\ See letters from Chris Barnard; Thompson Hine LLP; William 
A. Jacobson, Angel Prado, and Yaozhi Ye (``Cornell Securities Law 
Clinic''); Evolution Petroleum Corp.; Securities Industry and 
Financial Markets Association (``SIFMA''); The Washington Legal 
Foundation; Morgan Lewis; Continewity LLC; Davis Polk & Wardwell LLP 
(``Davis Polk''); Oppenheimer Funds.
    \13\ See, e.g., letters from Grohovsky, Vogel, and Lambert 
(``Grohovsky Group''); Peter van Schaick.
    \14\ See, e.g., joint letter from Americans for Limited 
Government; Ryder Systems, Inc.; Financial Services Institute, Inc.; 
U.S. Chamber of Commerce; Verizon; and White & Case, LLP (``Chamber 
of Commerce Group'').
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    Commenters made several suggestions relating specifically to the 
scope of the anti-retaliation protections. Among other things, 
commenters recommended that we expressly state in the rules that the 
anti-retaliation provisions do not apply to an individual if (1) he 
files a false, fraudulent, or bad faith and meritless submission; \15\ 
(2) he lacks a good faith or reasonable belief of a violation; \16\ or 
(3) the submission does not evince a ``reasonable likelihood of a 
violation of securities laws.'' \17\ Another commenter suggested the 
anti-retaliation provisions should only apply to those who qualify for 
an award.\18\
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    \15\ See, e.g., letters from Connolly & Finkel; National 
Association of Corporate Directors (``NACD''); Investment Company 
Institute (``ICI''); Valspar; Auditing Standards Committee of the 
Auditing Section of the American Accounting Association (``Auditing 
Standards Committee''); U.S. Chamber of Commerce Center for Capital 
Markets Competitiveness and the U.S. Chamber of Institute for Legal 
Reform (``CCMC''); joint letter from General Electric Company, 
Google, Inc., Honeywell, Inc., JPMorgan Chase & Co., Microsoft 
Corporation and Northrop Grumman Corporation (``GE Group''); Jones 
Day; TECO Energy. Two commenters suggested that the Commission 
should consider ``whether it can apply additional sanctions'' to any 
person who uses the whistleblower process in bad faith.'' See joint 
letter from the Financial Services Roundtable and the American 
Bankers Association (``Financial Services Roundtable''); letter from 
TECO Energy.
    \16\ See letters from Chris Barnard; Paul Hastings.
    \17\ See letter from Goodwin Proctor.
    \18\ See letter from NACD (commenting that not limiting anti-
retaliation protection to those who satisfy the conditions for an 
award ``opens the door for employees to submit fake allegations that 
may cause reputational harm to the company and/or unfairly embarrass 
corporate employees and leadership'').
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    Several commenters proposed that the anti-retaliation provisions 
should categorically exempt a company's adverse action against an 
employee based on factors other than whistleblower status,\19\ such as 
engaging in culpable conduct,\20\ failing to comply with the reporting 
requirements of a company's internal compliance programs,\21\ or 
violating a professional obligation to hold information in 
confidence.'' \22\ One commenter explained that, without a categorical 
exemption, the broad anti-retaliation provisions of the statute could 
prompt a ``wave of litigation'' alleging retaliation in such 
circumstances.\23\
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    \19\ See letters from Thompson Hine; Americans for Limited 
Government (``ALG''); AT&T Equal Employment Advisory Council 
(``EEAC''); Connolly & Finkel; ICI; GE Group; Society of Corporate 
Secretaries; Association of Corporate Counsel; Financial Services 
Roundtable; Davis Polk; ABA; joint letter from Allstate Insurance 
Company, American Institute of Certified Public Accountants, 
American Insurance Association, Americans for Limited Government, 
Association of Corporate Counsel, AT&T, Center for Business Ethics, 
Dover Corporation, FedEx Corporation, Financial Services Institute, 
Inc., Pharmaceutical Research and Manufacturers of America, Retail 
Industry Leaders Association, Royal Caribbean Cruises Ltd, Ryder 
Systems, Inc., UPS, U.S. Chamber of Commerce, U.S. Chamber of 
Commerce Institute for Legal Reform, Verizon and White & Case, LLP 
(``Allstate Group'').
    \20\ See letters from ALG; Allstate Group; Morgan Lewis; Davis 
Polk; ABA.
    \21\ See letters from Thompson Hine; see also letters from ALG; 
Allstate Group; Connolly & Finkel; NACD; TECO Energy; Association of 
Corporate Counsel.
    \22\ See letter from the ABA.
    \23\ See letter from ALG; see also letter from Allstate Group.
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    Commenters made a series of other suggestions related to the scope 
and enforceability of the anti-retaliation protections, including that 
we should: (1) Clarify our authority to bring enforcement actions based 
on retaliation; \24\ (2) provide that the anti-retaliation remedies may 
not be waived by any agreement, policy, or condition of employment; 
\25\ and (3) exclude from anti-retaliation protection employees whose 
submissions are based on information that is either publicly 
disseminated or which the employee should reasonably know is already 
known to the company's board of directors or chief compliance officer, 
a court, the Commission or another governmental entity.\26\
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    \24\ Letter from Alex Hoover; see also letters from Bryan 
Maloney; National Coordinating Committee for Multiemployer Plans 
(``NCCMP'').
    \25\ See letter from Kaiser Saurborn & Mair.
    \26\ See letter from ABA.
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c. Final Rule
    In response to the comments, we have made several changes to the 
definition of whistleblower in Rule 21F-2(a) and the application of the 
anti-retaliation provisions in Rule 21F-2(b) to more precisely track 
the scope of Section 21F(h)(1). We are adopting Rule 21F-2(c) as 
proposed, but have re-designated it as Rule 21F-2(a)(2).
    With respect to the definition of whistleblower, we agree with 
those commenters who suggested that the term ``potential violation'' 
may be imprecise, and thus in the final rule have changed this to 
``possible violation'' that ``has occurred, is ongoing, or is about to 
occur.'' We believe that this modification provides greater clarity 
concerning when an individual who provides us with information about 
possible violations, including possible future violations, of the 
securities laws qualifies as a whistleblower. An individual would meet 
the definition of whistleblower if he or she provides information about 
a ``possible violation'' that ``is about to occur.''
    Although some commenters recommended that we use the terms 
``probable violation'' or ``likely violation,'' we have decided to use 
the term ``possible violation.'' In our view, this requires that the 
information should indicate a facially plausible relationship to some 
securities law violation--frivolous submissions would not qualify for 
whistleblower status. We believe that a higher standard requiring a 
``probable'' or ``likely'' violation is unnecessary, and would make it 
difficult for the staff to promptly assess whether to accord 
whistleblower status to a submission.
    In the final rule, the definition of whistleblower clarifies that 
the submission must relate to a violation of

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the Federal securities laws, or a rule or regulation promulgated by the 
Commission. An individual who submits information that relates only to 
a state law or foreign law violation would not satisfy the 
whistleblower definition.
    The final rule also clarifies that, to qualify as a whistleblower 
eligible for the award program and the heightened confidentiality 
provisions of Section 21F(h)(2) of the Exchange Act, an individual must 
submit his or her information to the Commission in accordance with the 
procedures set forth in Rule 21F-9(a).\27\ Rule 21F-9(a) establishes 
procedures for an individual to mail, fax, or electronically submit to 
us information relating to a possible securities law violation. As 
proposed, our definition could have been misconstrued to apply to any 
individuals who provide us with information relating to a securities 
law violation, including individuals whom we subpoena and law 
enforcement personnel from other governmental authorities. This result 
would have been outside the intended scope of Section 21F.
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    \27\ The statutory definition of ``whistleblower'' in Section 
21F(a)(6) of the Exchange Act provides that the Commission may 
``establish by rule or regulation'' the ``manner'' in which an 
individual provides the Commission information so as to qualify as a 
whistleblower for purposes of the awards program.
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    We have not added a requirement that the information relate to a 
``material'' violation of the securities laws. We believe that, rather 
than use a materiality threshold barrier that might limit the number of 
submissions to us, it is preferable for individuals to provide us with 
any information they possess about possible securities violations 
(irrespective of whether it appears to relate to a material violation) 
and for us to evaluate whether the information warrants action.\28\ To 
the extent that commenters advanced this suggestion as a way to prevent 
individuals from abusing the anti-retaliation protections afforded by 
Section 21F(h) of the Exchange Act, we believe this issue is 
sufficiently addressed by the revisions to Rule 21F-2(b), discussed 
further below. To the extent that commenters suggested this approach as 
a way to reduce frivolous submissions, we believe our use of the term 
``possible violation'' sufficiently addresses this concern.
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    \28\ We do not expect potential whistleblowers to make a fact-
dependent materiality assessment.
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    We have decided not to extend the definition of whistleblower 
beyond natural persons because we believe that this is consistent with 
the statutory definition, which provides that a whistleblower must be 
an ``individual.'' The ordinary meaning of ``individual'' is ``natural 
person,'' \29\ and nothing in the statutory text or legislative history 
suggests a different meaning here. Although one commenter identified a 
reference to ``individuals'' in the False Claims Act to argue that the 
term should be read to extend beyond natural persons, we note that the 
False Claims Act otherwise repeatedly refers to whistleblowers as 
``persons'' (which ordinarily extends beyond natural persons),\30\ and 
we believe this explains the different result under that Act.\31\
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    \29\ See, e.g., Jove Engineering, Inc. v. I.R.S., 92 F.3d 1539, 
1550-51 (11th Cir. 1996) (quoting Black's Law Dictionary 773 (6th 
ed. 1996), and Webster's New Collegiate Dictionary 581 (8th ed. 
1979)).
    \30\ Compare 31 U.S.C. 3730(e)(4)(B) with id. 3730(b)(1) (``A 
person may bring a civil action * * *''), and id. 3730(b)(4)(B)(5) 
(``When a person brings an action * * *'').
    \31\ The ABA made several additional recommendations to clarify 
and/or narrow the definition of whistleblower. See letter from ABA. 
Specifically, the ABA recommended that we: (1) Exclude from the 
definition individuals who provide information that is ``clearly 
stale (e.g., flawed disclosure in a ten-year old proxy statement); 
(2) require as part of the definition that the individual have a 
non-speculative ``basis in fact or knowledge'' to support the 
potential securities law violation; and (3) exclude from the 
definition individuals who provide information that is ``either 
publicly disseminated [already] or which the employee should 
reasonably know is already known to the company's board of directors 
or chief compliance officer, a court or the Commission or another 
governmental entity.'' With respect to clearly stale information, we 
believe that this is already addressed by the requirement that the 
information relate to a ``possible violation,'' because we view this 
term as encompassing a requirement that the violation must be 
potentially actionable, which would preclude plainly stale 
violations. Similarly, we believe that the ``possible violation'' 
requirement excludes submissions that have no ``basis in fact or 
knowledge.'' Finally, rather than addressing in the threshold 
definition of whistleblower information that is already publicly 
known, we have addressed this issue in Rule 21F-4 in the definition 
of ``original information.''
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    We have modified proposed Rule 21F-2(b)'s anti-retaliation 
protections, which are now in Rule 21F-2(b)(1). We are also adding Rule 
21F-2(b)(2), which expressly states that the Commission may enforce the 
anti-retaliation provisions of Section 21F(h)(1) of the Exchange Act 
and any rules promulgated thereunder.
    Rule 21F-2(b)(1) provides that, for purposes of the anti-
retaliation protections afforded by Section 21F of the Exchange Act, an 
individual is a whistleblower if (i) he possesses a reasonable belief 
that the information he is providing relates to a possible securities 
law violation (or, where applicable, to a violation of the provisions 
set forth in 18 U.S.C. 1514A(a)) that has occurred, is ongoing, or is 
about to occur, and (ii) he reports that information in a manner 
described in Section 21F(h)(1)(A).
    With respect to the first prong of this standard, the employee must 
possess a ``reasonable belief that the information he is providing 
relates to a possible securities law violation (or, where applicable, 
to a violation of the provisions set forth in 18 U.S.C. 1514A(a)) \32\ 
that has occurred, is ongoing, or is about to occur.'' The ``reasonable 
belief'' standard requires that the employee hold a subjectively 
genuine belief that the information demonstrates a possible violation, 
and that this belief is one that a similarly situated employee might 
reasonably possess.\33\ We believe that requiring a ``reasonable 
belief'' on the part of a whistleblower seeking anti-retaliation 
protection strikes the appropriate balance between encouraging 
individuals to provide us with high-quality tips without fear of 
retaliation, on the one hand, while not encouraging bad faith or 
frivolous reports, or permitting abuse of the anti-retaliation 
protections, on the other.\34\ This approach is consistent with the 
approach followed by various courts that have construed the anti-
retaliation provisions of other Federal statutes, including the False 
Claims Act,\35\ to

[[Page 34304]]

require that a whistleblower have a reasonable belief that he or she is 
reporting a violation of that statute even where the statute does not 
expressly require such a showing.\36\
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    \32\ This parenthetical reflects the fact that the anti-
retaliation protection afforded by Section 21F(h)(1)(A)(iii) 
includes not only reports of securities law violations, but also 
various other violations of Federal law (e.g., 18 U.S.C. 1341, 1343, 
1344, and 1348).
    \33\ See, e.g., Livingston v. Wyeth, Inc., 520 F.3d 344, 352 
(4th Cir. 2008); Clover v. Total Sys. Servs., Inc., 176 F.3d 1346, 
1351 (11th Cir. 1999).
    \34\ See, e.g., Parker v. B&O R. Co., 652 F.2d 1012, 1020 (DC 
Cir. 1981) (holding, in Title VII retaliation case, that ``[t]he 
employer is sufficiently protected against malicious accusations and 
frivolous claims by a requirement that an employee seeking the 
protection of the opposition clause demonstrate a good faith, 
reasonable belief that the challenged practice violates Title 
VII''); McDonnell v. Cisneros, 84 F.3d 256, 259 (7th Cir.1996) 
(``There is nothing wrong with disciplining an employee for filing 
frivolous complaints''); Hindsman v. Delta Airlines, 2010 DOL Ad. 
Rev. Bd. 58 LEXIS at *10 (ARB Jun. 30, 2010) (interpreting the anti-
retaliation provisions of the Wendell H. Ford Aviation Investment 
and Reform Act, which explicitly excludes frivolous complaints and 
those brought in bad faith, as requiring a ``reasonable belief'' by 
the whistleblower that the violation of the statute has occurred).
    \35\ See Fanslow v. Chi. Mfg, Ctr., 384 F.3d 469, 480 (7th Cir. 
2004) (noting that several circuits had held that the relevant 
inquiry to determine whether an employee's actions are protected 
under the False Claims Act is whether ``(1) the employee in good 
faith believes, and (2) a reasonable employee in the same or similar 
circumstances might believe, that the employer is committing fraud 
against the government'') (citing Moore v. Cal. Inst. of Tech., Jet 
Propulsion Lab, 275 F.3d 838, 845 (9th Cir. 2002); Wilkins v. St. 
Louis, 314 F.3d 927, 933 (8th Cir. 2002), and McNeil v. Empl. Sec. 
Dep't, 2002 Wash. App. LEXIS 1900, at *15-*16 (Wash. Ct. App. Aug. 
9, 2002) (same)).
    \36\ See, e.g., Calhoun v. United States Dep't of Labor (``US 
DOL''), 576 F.3d 201, 212 (4th Cir. 2009) (anti-retaliation 
provisions of the Surface Assistance Transportation Act); Knox v. 
U.S. DOL, 232 Fed. App. 255, 258-59 (4th Cir. 2007) (Clean Air Act); 
Williams v. U.S. DOL, 157 Fed. Appx. 575-76 (4th Cir. 2005) (Toxic 
Substances Control Act, Solid Waste Disposal Act and Clean Air Act); 
see also Vinnett v. Mitsubishi Power Systems, 2010 DOL Ad. Rev. Bd. 
LEXIS 69 at *12 (ARB Jul. 27, 2010) (Energy Reorganization Act 
requires ``reasonable belief'' of violation); Carter v. Electrical 
District No. 2 of Pinal County, 1995 DOL Sec. Labor LEXIS 153 (July 
26, 1995) (requiring reasonable belief under anti-retaliation 
provisions of environmental statutes). Other anti-retaliation 
provisions, such as the anti-retaliation provisions enacted by 
Section 806 the Sarbanes-Oxley Act of 2002, expressly contain a 
``reasonable belief'' standard. See 18 U.S.C. 1514A(a).
---------------------------------------------------------------------------

    The second prong of the Rule 21F-2(b)(1) standard provides that, 
for purposes of the anti-retaliation protections, an individual must 
provide the information in a manner described in Section 21F(h)(1)(A). 
This change to the rule reflects the fact that the statutory anti-
retaliation protections apply to three different categories of 
whistleblowers, and the third category includes individuals who report 
to persons or governmental authorities other than the Commission. 
Specifically, Section 21F(h)(1)(A)(iii)--which incorporate the anti-
retaliation protections specified in Section 806 of the Sarbanes-Oxley 
Act, 18 U.S.C. 1514A(a)(1)(C)--provides anti-retaliation protections 
for employees of public companies, subsidiaries whose financial 
information is included in the consolidated financial statements of 
public companies, and nationally recognized statistical rating 
organizations \37\ when these employees report to (i) A Federal 
regulatory or law enforcement agency, (ii) any member of Congress or 
committee of Congress, or (iii) a person with supervisory authority 
over the employee or such other person working for the employer who has 
authority to investigate, discover, or terminate misconduct. However, 
the retaliation protections for internal reporting afforded by Section 
21F(h)(1)(A) do not broadly apply to employees of entities other than 
public companies.\38\
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    \37\ The anti-retaliation protections afforded by Section 806 of 
the Sarbanes-Oxley Act have also been read to cover employees of 
agents or contractors of public companies in certain situations. See 
Klopfenstein v. PCC Holdings Corp, 2006 DOL Ad. Rev. Bd. LEXIS 50 
(ARB May 31, 2006) (employee of a private subsidiary of a public 
company was covered under Section 806 where private subsidiary acted 
at direction of public company in taking adverse action against 
complainant); Lawson v. FMR LLC, 724 F. Supp. 2d 167, 169 (D. Mass. 
2010) (employees of private investment advisers to investment 
companies were covered by Section 806), on appeal, No. 10-2240 (1st 
Cir.).
    \38\ In a few limited situations--reporting by employees of 
subsidiaries and NRSRO's covered by SOX Section 806, and by 
employees whose reports were required or protected under SOX or the 
Exchange Act, see Section 21F(h)(1)(A)(iii)--internal reporting is 
expressly protected.
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    In addition, Rule 21F-2(b)(1)(iii) provides that the retaliation 
protections apply to a whistleblower irrespective of whether the 
whistleblower is ultimately entitled to an award. This provision of the 
rule restates a result compelled by the text of Section 21F(h)(1), 
which on its face provides retaliation protection to whistleblowers 
irrespective of whether they actually collect an award.\39\
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    \39\ Indeed, providing whistleblowers anti-retaliation 
protection only if they ultimately receive an award could unduly 
deter whistleblowers from coming forward with information. Under 
that approach, a whistleblower would not be protected from 
retaliation if he or she had provided accurate information about the 
employer's violation, but for some reason no successful Commission 
action was brought or the whistleblower was not awarded a payment.
---------------------------------------------------------------------------

    Rule 21F-2(b)(2) states that Section 21F(h)(1) of the Exchange Act, 
including any rules promulgated thereunder, shall be enforceable in an 
action or proceeding brought by the Commission. Because the anti-
retaliation provisions are codified within the Exchange Act, we agree 
with commenters that we have enforcement authority for violations of 
Section 21F(h)(1) by employers who retaliate against employees for 
making reports in accordance with Section 21F.\40\
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    \40\ Section 21F(h)(1)(B).
---------------------------------------------------------------------------

    With regard to the other significant comments made regarding the 
anti-retaliation provisions in Rule 21F-2(b), for the reasons set forth 
below we find that it is either inappropriate or unnecessary to make 
the modifications that those commenters recommended. Regarding the 
comments that we should categorically provide that employees who make 
whistleblower reports to us may be disciplined for reasons independent 
of their whistleblowing activities, we think this is unnecessary. By 
its terms, the statute only prohibits adverse employment actions that 
are taken ``because of'' any lawful act by the whistleblower to provide 
information; adverse employment actions taken for other reasons are not 
covered. Moreover, there is a well-established legal framework for 
making this factual determination on a case-by case basis,\41\ and we 
see no indication that Congress intended to depart from this framework 
here.\42\
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    \41\ This framework involves burden-shifting analysis. See, e.g, 
Roadway Express, Inc. v. U.S. DOL, 495 F.3d 477, 481-82 (7th Cir. 
2007); Scott v. Metropolitan Health Corp., 234 Fed Appx. 341, 346 
(6th Cir. 2007) (applying burden shifting analysis to retaliation 
claim under the False Claims Act). See generally McDonnell Douglas 
Corp. v. Green, 411 U.S. 792 (1973). It provides that (1) the 
employee must first make a prima facie case of retaliation (that is, 
that he or she engaged in protected activity, has suffered an 
adverse employment action, and that the action was causally 
connected to the protected activity), (2) the burden then shifts to 
the employer to articulate a legitimate, non-retaliatory reason for 
its employment decision, after which (3) the burden shifts to the 
employee to show that the proffered legitimate reason is in fact a 
pretext and that the job action was the result of the defendant's 
retaliatory animus. E.g., Collazo v. Bristol-Myers Squibb Mfg, Inc., 
617 F.3d 39, 46 (1st Cir. 2010) (citations and quotations omitted). 
While anti-retaliation claims brought under the Sarbanes-Oxley Act 
of 2002 (``SOX'') (unlike with Section 21F) are governed by a 
slightly different framework, under that framework the determination 
of whether an employee was disciplined for retaliatory or legitimate 
reasons is likewise a fact-bound inquiry. SOX claims are governed by 
the procedures applicable to whistleblower claims brought under the 
Wendell H. Ford Aviation Investment and Reform Act for the 21st 
Century. See 18 U.S.C. 1514A(b)(2). Under that statute, ``the 
employee bears the initial burden of making a prima facie showing of 
retaliatory discrimination because of a specific act''; once the 
employee makes that showing, ``[t]he burden then shifts to the 
employer to rebut the employee's prima facie case by demonstrating 
by clear and convincing evidence that the employer would have taken 
the same personnel action in the absence of protected activity.'' 
See Day v. Staples, Inc., 555 F.3d 42, 53 (1st Cir. 2009).
    \42\ We note that where Congress intended to categorically 
exclude from anti-retaliation protections of certain statutes those 
employees who, without any direction from the employer, 
deliberatively committed violations of those statutes, it has 
expressly said so. See., e.g., 33 U.S.C. 1367(d) (excluding such 
employees from anti-retaliation protections of Federal Water 
Pollution Control Act); 15 U.S.C. 2622(e) (TOSCA); 42 U.S.C. 6971(d) 
(Solid Waste Disposal Act); 42 U.S.C. 7622(g) (Clean Air Act); 42 
U.S.C. 9610(d) (CERCLA); 42 U.S.C. 5851(g) (Energy Reorganization 
Act).
---------------------------------------------------------------------------

    With regard to the comment expressing concern that entities might 
require employees to waive their anti-retaliation rights under Section 
21F, we believe that possibility is foreclosed by the Exchange Act. 
Specifically, because Section 21F is codified in the Exchange Act, it 
is covered by Section 29(a) of the Exchange Act, which specifically 
provides that ``[a]ny condition, stipulation, or provision binding any 
person to waive compliance with any provision of this title or any rule 
or regulation thereunder * * * shall be void.'' \43\ Thus, under 
Section 29(a), employers may not require employees to waive or limit 
their anti-retaliation rights under Section 21F.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78cc(a).
---------------------------------------------------------------------------

C. Rule 21F-3--Payment of Award

a. Proposed Rule
    Paragraphs (a) and (b) of Proposed Rule 21F-3 summarized the 
statutory

[[Page 34305]]

requirements for payment of an award based on a covered action or a 
related action. Paragraph (a) stated that, subject to the eligibility 
requirements in the Regulation, 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) described the circumstances under which 
the Commission would also pay an award to the whistleblower based upon 
monetary sanctions that are collected from a ``related action.'' 
Payment based on the ``related action'' would 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 explained 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 stated that the Commission would deny an award to a 
whistleblower if the Commission determined that the criteria for an 
award are not satisfied or if the Commission was unable to obtain 
sufficient and reliable information about the related action.
    Paragraph (d) of Proposed Rule 21F-3 provided that the Commission 
would 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.\44\ Proposed Rule 21F-3(d) also provided 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.
---------------------------------------------------------------------------

    \44\ See 7 U.S.C. 26.
---------------------------------------------------------------------------

b. Comments Received
    We received a few comments on the proposed rule's treatment of 
related actions.
    One commenter objected to paragraph (c) to the extent that it would 
preclude a recovery in situations where the Commission is unable to 
obtain sufficient and reliable information about the related action to 
make a conclusive determination of the whistleblower's contribution to 
the success of the related action, suggesting instead that the rule 
include a mechanism for inter-agency coordination to allow the 
Commission to understand the whistleblower's contribution to the 
related action.\45\ Another commenter challenged paragraph (c) because 
it would preclude an award for a whistleblower in situations where the 
Department of Justice or another entity pursues a successful action 
based on a whistleblower's tip that the Commission forwarded, but the 
Commission does not bring an enforcement action.\46\
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    \45\ See letter from VOICES.
    \46\ See letter from Stuart D. Meissner, LLC.
---------------------------------------------------------------------------

    With respect to proposed paragraph (d) and the overlap with CFTC 
actions, one commenter commended the Commission for clarifying that the 
Commission will not make an award in a related action if the CFTC has 
already made an award to the whistleblower on that action,\47\ while 
another acknowledged that there should not be double recoveries, but 
stated that there should be no automatic rule that would bar rewards 
because the interaction of the Commission and CFTC programs can be 
adjudicated on a case-by-case basis.\48\
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    \47\ See letter from Society of Corporate Secretaries.
    \48\  See letter from the National Whistleblowers Center 
(``NWC'').
---------------------------------------------------------------------------

c. Final Rule
    After reviewing the comments, we have decided to adopt Rule 21F-3 
substantially as proposed.\49\ With respect to related actions, we do 
not believe that inter-agency coordination can always ensure that the 
Commission will obtain ``sufficient and reliable information'' about a 
whistleblower's contribution to the success of a related action, and 
thus we continue to believe that there is a need for paragraph 
(b)(2).\50\ We have not modified the rule to permit a whistleblower to 
recover in a related action absent a successful Commission action, 
because the statute expressly requires a successful Commission action 
before there can be a ``related action'' upon which a whistleblower may 
recover.\51\
---------------------------------------------------------------------------

    \49\ In the final rule, we have grouped proposed paragraphs (b)-
(d) together under the heading ``related actions,'' and renumbered 
these paragraphs (b)(1)-(b)(3), respectively. We have also changed 
the term ``appropriate regulatory agency'' to ``appropriate 
regulatory authority'' to more closely comport with the terms of 
Section 21F and to clarify that our rules regarding payment for 
awards in connection with related actions govern actions brought by 
other agencies, not Commission actions. See discussion below under 
Rule 21F-4(g).
    \50\ In cases where the Commission coordinates closely with an 
entity that ultimately brings a related action, we anticipate that 
Commission staff will know and will be able to provide information 
about the whistleblower's contribution to the coordinated efforts. 
We have added a reference to new Rule 21F-12(a)(5) which provides 
that neither the Commission nor the Claims Review Staff is permitted 
to rely upon any information received from the entity that brought 
the related action if the entity has precluded us from also sharing 
that information with a claimant. The reference to Rule 21F-12(a)(5) 
makes clear that if the Commission is unable to receive sufficient 
and reliable information that is available for the claimant's 
review, the Commission will deny the claimant's related-action award 
request.
    \51\ See Section 21F(a)(5) of the Exchange Act, 15 U.S.C. 78u-
6(a)(5) (related action must be ``based upon the original 
information * * * that led to the successful enforcement of the 
Commission action'').
---------------------------------------------------------------------------

    With respect to the interrelation with CFTC actions, we are 
adopting the rule substantially as proposed because it provides 
claimants with a clear statement of how the Commission will address any 
issues that arise where a claimant pursues either a double recovery or 
a ``second bite at the apple'' by filing an application for an award on 
a related action after having already pursued an award on the same 
action under the CFTC's whistleblower awards program.\52\ Our Proposing 
Release had included the qualification that the issue must have been 
``necessary'' to the CFTC's determination, but we believe this 
requirement would have introduced unwarranted disputes over whether a 
particular issue was actually necessary. Therefore, we have made a 
slight modification to provide that the CFTC need only have decided the 
issue against the award claimant.
---------------------------------------------------------------------------

    \52\ Several comment letters suggested that a qui tam action 
under the False Claims Act, 31 U.S.C. 3729 et seq, could qualify as 
a ``related action.'' See, e.g., letter from VOICES. This is not 
correct. A qui tam action is not brought by the Attorney General of 
the United States as is required under the definition of ``related 
action'' in Section 21F(a)(5) of the Exchange Act. In a qui tam 
action, the relator ``bring[s]'' the action ``in the name of the 
Government,'' see Vermont Agency of Natural Resources v. United 
States ex rel. Stevens, 529 U.S. 765, 769 (2000), and thereafter the 
Attorney General may ``elect to intervene and proceed with the 
action,'' 31 U.S.C. 3730(b)(2), 3730(b)(4). Moreover, given that 
Congress has specifically provided a 15-30% award for successful qui 
tam plaintiffs, see 31 U.S.C. 3730(d)(1)-(2), we do not believe 
Congress intended Section 21F of the Exchange Act to permit 
additional recovery for the same action above what it specified in 
the False Claims Act.

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[[Page 34306]]

D. Rule 21F-4--Other Definitions

    Although the statute defines several relevant terms, Rule 21F-4 
defines other 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.
1. Rule 21F-4(a)--Voluntary submission of information
a. Proposed Rule
    Under Section 21F(b)(1) of the Exchange Act,\53\ whistleblowers are 
eligible for awards only when they ``voluntarily'' provide original 
information about securities violations to the Commission. Proposed 
Rule 21F-4(a)(1) defined a submission as made ``voluntarily'' if a 
whistleblower provided the Commission with information before receiving 
any 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 was 
relevant. The proposed rule covered both formal and informal requests. 
Thus under the proposed rule, a whistleblower's submission would not be 
considered ``voluntary'' if the whistleblower was contacted by the 
Commission or one of the other authorities first, whether or not the 
whistleblower's response was compelled by subpoena or other applicable 
law.
---------------------------------------------------------------------------

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

    As our Proposing Release explained, this approach was intended to 
create a strong incentive for whistleblowers to come forward early with 
information about possible violations of the Federal securities laws, 
rather than wait to be approached by investigators. For the same 
reasons, Proposed Rule 21F-4(a)(2) provided that a whistleblower's 
submission of documents or information would not be deemed 
``voluntary'' if the documents or information were within the scope of 
a prior request, inquiry, or demand to the whistleblower's employer, 
unless the employer failed to make production to the requesting 
authority in a timely manner.
    Proposed Rule 21F-4(a)(3) provided that a submission also would not 
be considered ``voluntary'' if the whistleblower was under a pre-
existing legal or contractual duty to report the securities violations 
to the Commission or to one of the other designated authorities.
b. Comments Received
    Commenters had diverse perspectives on our proposal to require that 
whistleblowers come forward before they receive either a formal or 
informal request or demand from the Commission or one of the other 
designated authorities about any matter relevant to their submission. 
Some commenters believed that our proposed rule was too restrictive. 
For example, one commenter urged that all information provided by a 
whistleblower should be treated as ``voluntary'' until the 
whistleblower is testifying under compulsion of a subpoena.\54\ Another 
commenter suggested that persons who are first contacted by an 
authority should remain eligible for awards if they provide information 
about transactions or occurrences beyond the specific parameters of the 
request.\55\ A third commenter expressed concern that our proposed rule 
could have the effect of barring whistleblowers in cases where the 
whistleblower's information is arguably ``relevant'' to a general 
informational request from an authority, even though the authority is 
not focused on the issue on which the whistleblower might report.\56\
---------------------------------------------------------------------------

    \54\ See letter from NWC.
    \55\ See letter from Bijan Amini.
    \56\ See letter from Taxpayers Against Fraud (``TAF''). As an 
example, this commenter pointed out that a request by a municipal 
bond issuer for completed transaction documents from a Guaranteed 
Investment Contract (``GIC'') provider could be interpreted to 
preclude a ``voluntary'' submission of whistleblower allegations 
that the GIC provider engaged in bid rigging.
---------------------------------------------------------------------------

    Other commenters took the view that our proposed rule did not go 
far enough in precluding whistleblower submissions from being treated 
as ``voluntary.'' A number of commenters urged that our rules also 
preclude an individual from making a ``voluntary'' submission after the 
individual has been contacted for information in the course of a 
company's internal investigation or other internal review.\57\ In 
response to one specific request for comment, other commenters 
advocated that we not treat a submission as ``voluntary'' if the 
whistleblower was aware of a governmental or internal investigation at 
the time of the submission, whether or not the whistleblower received a 
request from the Commission or one of the other authorities.\58\
---------------------------------------------------------------------------

    \57\ See letters from CCMC; Jones Day; and GE Group (arguing 
that a person who is questioned by an employer about a matter should 
not be permitted subsequently to become a whistleblower unless he or 
she provided the employer substantially the same information in 
response to the employer's questioning).
    \58\ See letters from ABA, Wells Fargo, and the National Society 
of Compliance Professionals (``NSCP'').
---------------------------------------------------------------------------

    Our request for comment on whether a whistleblower's submission 
should be deemed to be ``voluntary'' if the information was within the 
scope of a previous request to the whistleblower's employer (Proposed 
Rule 21F-4(a)(2)) also generated diverse reactions. Some commenters 
urged that we eliminate this provision because it could have a sweeping 
effect in cutting off large numbers of potential whistleblowers, in 
particular in industry-wide investigations.\59\ Other commenters 
supported the exclusion and suggested that it be expanded in various 
ways.\60\
---------------------------------------------------------------------------

    \59\ See letters from Section on Corporation, Finance and 
Securities Law of the District of Columbia Bar (``DC Bar''), Daniel 
J. Hurson, Continewitty LLC.
    \60\ See letters from SIFMA (urging elimination of the exception 
that would permit an employee to make a voluntary submission if the 
employer did not produce the documents or information in a timely 
manner), Wells Fargo (same); NCSP (employee should be regarded as 
having received a request to an employer if there is a reasonable 
likelihood that the employee would have been contacted by the 
employer in responding to the request); and the Institute of 
Internal Auditors (should expand exclusion to other persons within 
the scope of a request, such as contractors, agents, and service 
providers).
---------------------------------------------------------------------------

    Our proposed rule to preclude whistleblowers from acting 
``voluntarily'' if they are under a pre-existing legal or contractual 
duty to report the violations to the Commission or another authority 
(Proposed Rule 21F-4(a)(3)) also generated varied comment. Some 
commenters opposed the exclusion on the grounds that Section 21F(c)(2) 
of the of the Exchange Act sets forth a specific list of persons whom 
Congress deemed to be ineligible for awards, some as a result of their 
pre-existing duties.\61\ These commenters urged that the Commission 
should not expand these exclusions, as doing so would be inconsistent 
with Congressional intent and would undermine the purposes of Section 
21F.\62\ One of these commenters asserted, for example, that the 
proposed rule could result in barring submissions from individual 
employees if regulators require companies under their

[[Page 34307]]

jurisdiction to report violations of law, and could also preclude 
submissions from some senior corporate managers who are obligated under 
Federal procurement regulations to report violations of various Federal 
criminal laws, False Claims Act violations and overpayments on 
government contracts to agency inspectors general and to contracting 
officers.\63\ This same commenter also expressed concern that the 
Commission should not be in a position of having to decide whether 
whistleblowers from within state or municipal corporations have pre-
existing obligations to report violations.
---------------------------------------------------------------------------

    \61\ Section 21F(c)(2), 15 U.S.C. 78u-6(c)(2), sets forth four 
categories of individuals who are ineligible for whistleblower 
awards. These include employees of the Commission and of certain 
other authorities, persons who are convicted of a criminal violation 
in relation to action for which they would otherwise be eligible for 
an award, auditors in cases where a submission would be contrary to 
the requirements of Section 10A of the Exchange Act, and persons who 
fail to submit information in the form required by the Commission's 
rules.
    \62\ See letters from NWC; Stuart D. Meissner, LLC; NCCMP; DC 
Bar; and Daniel J. Hurson.
    \63\ See letter from the DC Bar, citing 73 FR 67064 (December 
2008).
---------------------------------------------------------------------------

    Other commenters favored the ``legal duty'' exclusion and 
recommended that its reach be clarified and extended. In particular, 
these commenters suggested that the exclusion should be applied to 
various categories of individuals in the corporate context. Several 
commenters urged that we not consider submissions to be ``voluntary'' 
in circumstances where an employee or an outside service provider has a 
duty to report misconduct to a company.\64\ Another commenter suggested 
that a company's principal financial officer, principal executive 
officer, senior management, audit committee, and board of directors 
should be viewed as having a legal duty to report violations to the 
government because of the officer certification requirements of Section 
302 of the Sarbanes-Oxley Act, and the provisions regarding reporting 
of illegal acts under Section 10A of the Exchange Act.\65\
---------------------------------------------------------------------------

    \64\ See letters from NSCP and from Financial Services 
Roundtable.
    \65\ 15 U.S.C. 78j-1; see letter from the Cornell Securities Law 
Clinic.
---------------------------------------------------------------------------

    Our request for comment concerning whether the ``legal duty'' 
limitation on voluntary submissions should apply to all government 
employees prompted a number of responses. Some commenters appeared to 
take the view that government employees who are involved in law 
enforcement or the regulation of business or financial services should 
be deemed to have a legal duty to report violations.\66\ Other 
commenters indicated that government employees should be viewed as 
having a duty to report violations that they uncover in the course of 
their official duties.\67\
---------------------------------------------------------------------------

    \66\ See letters from Patrick Burns, ICI, Auditing Standards 
Committee, and TRACE International, Inc.
    \67\ See letters from the NACD and Grohovsky Group. See also 
letter from the Institute of Internal Auditors (``a general 
preclusion of government employees would be appropriate.'').
---------------------------------------------------------------------------

    Finally, most commenters who responded to our request for comment 
on whether the list of other authorities in the rule should include 
foreign authorities stated that foreign authorities should be 
included.\68\ Two commenters argued against this approach. One of these 
emphasized that the Commission cannot be assured that all foreign 
authorities will share information they may obtain concerning possible 
violations of U.S. securities laws, and that it would be difficult for 
the Commission in many instances to determine whether an individual 
owed a legal duty under foreign law to report a violation to a foreign 
authority.\69\ Another similarly argued that the fact that a 
whistleblower received a request from a foreign authority would not 
compel the whistleblower to provide the information to the 
Commission.\70\
---------------------------------------------------------------------------

    \68\ See letters from Auditing Standards Committee; NSCP; 
Continewity, LLC; Society of Corporate Secretaries; Institute of 
Internal Auditors.
    \69\ See letter from Georg Merkl.
    \70\ See letter from VOICES.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we have decided to adopt the rule 
with certain modifications. Although we continue to believe that a 
requirement that the whistleblower come forward before being contacted 
by government investigators is both good policy and consistent with 
existing case law from related areas,\71\ we agree with the concerns 
expressed by some commenters that our proposed rule might have the 
unintended result of deterring high-quality submissions as a threshold 
matter based on an overly-broad construction of the concept of 
voluntariness. In response to this concern, we have made several 
changes to the final rule.
---------------------------------------------------------------------------

    \71\ Cf. Barth v. Ridgedale Electric, Inc., 44 F.3d 699 (8th 
Cir. 1994); United States ex rel. Paranich v. Sorgnard, 396 F.3d 326 
(3d Cir. 2005) (rejecting argument that information provided beyond 
that required by subpoena is voluntary for purposes of False Claims 
Act); United States ex rel. Fine v. Chevron, USA, Inc., 72 F.3d 740 
(9th Cir. 1995), cert. denied, 517 U.S.1233 (1996) (rejecting 
argument that provision of information to the Government is always 
voluntary unless compelled by subpoena).
---------------------------------------------------------------------------

    As adopted, paragraph (1) of Rule 21F-4(a) now provides that a 
submission of information is deemed to have been made ``voluntarily'' 
if the whistleblower makes his or her submission before a request, 
inquiry, or demand that relates to the subject matter of the submission 
is directed to the whistleblower or anyone representing the 
whistleblower (such as an attorney) (i) By the Commission; (ii) in 
connection with an investigation, inspection, or examination by the 
Public Company Accounting Oversight Board (``PCAOB'') or any self-
regulatory organization; \72\ or (iii) in connection with an 
investigation by Congress, any other authority of the Federal 
government, or a state Attorney General or securities regulatory 
authority.
---------------------------------------------------------------------------

    \72\ The term ``self-regulatory organization'' is defined in 
Rule 21F-4(h).
---------------------------------------------------------------------------

    Thus, rather than apply to all information requests of any kind, as 
was proposed, our final rule narrows the types of requests that that 
may preclude a later whistleblower submission from being treated as 
``voluntary.'' All requests from the Commission are still covered, as 
we believe that a whistleblower award should not be available to an 
individual who makes a submission after first being questioned about a 
matter (or otherwise requested to provide information) by the 
Commission staff acting pursuant to any of our investigative or 
regulatory authorities. Only an investigative request made by one of 
the other designated authorities will trigger application of the rule, 
except that a request made in connection with an examination or 
inspection, as well as an investigative request, by staff of the PCAOB 
or a self-regulatory organization will also render a whistleblower's 
subsequent submission relating to the same subject matter not 
``voluntary.'' This provision recognizes the important relationship 
that frequently exists between examinations and enforcement 
investigations, as well as our regulatory oversight of the PCAOB and 
self-regulatory organizations. However, the rule only precludes a 
whistleblower from making a ``voluntary'' submission if a previous 
request, as described, was directed to the whistleblower or to his or 
her personal representative. For example, an examination request 
directed to a broker-dealer or an investment adviser would not 
automatically foreclose whistleblower submissions related to the 
subject matter of the exam from all employees of the entity. However, 
if a firm employee were interviewed by examiners, the employee could 
not later make a ``voluntary'' submission related to the subject matter 
of the interview.\73\
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    \73\ As is further discussed below, individuals who wait to make 
their submission until after a request is directed to their employer 
will not face an easy path to an award. We expect to scrutinize all 
of the attendant circumstances carefully in determining whether such 
submissions ``significantly contributed'' to a successful 
enforcement action under Rule 21F-4(c)(2) in view of the previous 
request to the employer on the same or related subject matter.
---------------------------------------------------------------------------

    We have also narrowed the list of authorities set forth in the rule 
by limiting state and local authorities to state Attorneys General and 
state securities regulatory authorities.

[[Page 34308]]

Accordingly, whistleblowers will have the opportunity to submit 
information to the Commission ``voluntarily'' even after they receive 
requests from other state and local authorities. This change recognizes 
the fact that the Commission less regularly receives information 
through cooperative arrangements with state and local authorities other 
than state Attorneys General and state securities regulatory 
authorities.\74\
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    \74\ We have also determined not to expand the list of 
authorities in Rule 21F-4(a) to include foreign authorities. Foreign 
authorities operate under different legal regimes, with different 
standards. Further, as some commenters pointed out, whether and 
under what circumstances the Commission may receive information 
obtained by a foreign authority is more uncertain than is the case 
of other Federal authorities, and state Attorneys General or 
securities regulators. In addition, we may have limited ability to 
evaluate the scope of a request from a foreign authority to an 
individual, and whether it relates to the subject matter of the 
individual's whistleblower submission. We note, however, that in 
cases where we request the assistance of a foreign authority to 
obtain documents or information through a memorandum of 
understanding, and the foreign authority sends a corresponding 
request to one of its country's residents, we will treat the request 
as coming from us for purposes of our rule, with the result that a 
subsequent whistleblower submission on the same subject matter from 
the foreign resident will not be treated as ``voluntary.''
---------------------------------------------------------------------------

    As adopted, our rule retains the provision (now placed in a newly-
designated paragraph (2)) that a whistleblower who receives a request, 
inquiry, or demand as described in paragraph (1) first will not be able 
to make a subsequent ``voluntary'' submission of information that 
relates to the subject matter of the request, inquiry, or demand, even 
if a response is not compelled by subpoena or other applicable law.\75\ 
We believe that this approach strikes an appropriate balance between, 
on the one hand, permitting any submission to be considered 
``voluntary'' as long as it is not compelled, and, on the other hand, 
precluding a submission from being treated as ``voluntary'' whenever a 
whistleblower may have become ``aware of'' an investigation or other 
inquiry covered by the rule, regardless of whether the relevant 
authority contacted the whistleblower for information. A standard based 
on the receipt of a subpoena would go too far in permitting individuals 
to claim whistleblower awards even after being directly asked about 
conduct by staff of the Commission or other authorities. We do not 
believe either that Congress intended this result, or that it is 
suggested by existing law.\76\ Conversely, a rule that prohibited a 
whistleblower from acting ``voluntarily'' any time the whistleblower 
became aware of an investigation or other inquiry covered by the rule 
is overly inclusive because the subject of the inquiry may not be clear 
to potential whistleblowers with valuable information or these 
potential whistleblowers may not be known to the Commission. 
Accordingly, such an interpretation of ``voluntary'' is likely to have 
a negative impact on our Enforcement program by reducing the 
opportunities for us to receive high-quality, valuable information in 
many circumstances.\77\ Such a rule would create the difficult problem 
of determining whether a whistleblower was actually aware of an 
investigation or other inquiry before he or she came forward.
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    \75\ One commenter asked us to clarify that, after a 
whistleblower makes an initial voluntary submission, if the staff 
subsequently contacts the whistleblower and requests additional 
information, any information so provided will be eligible for an 
award. See letter from Stuart D. Meissner, LLC. While we agree that 
this should ordinarily be the case with respect to routine follow-up 
communications with most whistleblowers, there may be circumstances 
where the whistleblower's additional provision of information would 
not be deemed voluntary. For example, if the whistleblower only 
provides us with more detailed information pursuant to a cooperation 
agreement with the Department of Justice, we would not view the 
whistleblower as having ``voluntarily'' provided all of the 
subsequent information. In addition, potential whistleblowers are 
cautioned that Rule 21F-8(b) requires, as a condition of award 
eligibility, that a whistleblower provide the staff with all 
additional information in the whistleblower's possession that is 
related to the subject matter of the whistleblower's submission in a 
complete and truthful manner.
    \76\ One commenter expressed concern that many employees are 
required to sign confidentiality agreements that may prevent them 
from providing information to the Commission without a subpoena. See 
letter from David Sanford. We caution employers that, as adopted, 
Rule 21F-17(a) provides that no person may take any action to impede 
a whistleblower from communicating directly with the Commission 
about a possible securities law violation, including by enforcing or 
threatening to enforce a confidentiality agreement. Further, Section 
21F(h)(1)(A) of the Exchange Act prohibits any form of retaliation 
by an employer against a whistleblower because of any lawful act 
done by the whistleblower in providing information to the Commission 
in accordance with Section 21F. 15 U.S.C. 78u-6(h)(1)(A)(i).
    \77\ For example, an individual who becomes aware of an 
investigation and who has valuable information or documents to offer 
may not, in the ordinary course, be approached by investigators. 
This is particularly likely to be the case if the individual is not 
directly or indirectly involved in the conduct under investigation. 
We do not believe that it would be appropriate to adopt a definition 
of ``voluntary'' that might prevent such individuals from coming 
forward and assisting our staff as whistleblowers.
---------------------------------------------------------------------------

    For similar reasons, we reject the suggestion of some commenters 
that a whistleblower should not be permitted to make a ``voluntary'' 
submission after being contacted for information in the course of an 
internal investigation. Elsewhere in our rules, we have attempted to 
create strong incentives for employees to continue to utilize their 
employers' internal compliance and other processes for receiving and 
addressing reports of possible violations of law. If a whistleblower 
took any steps to undermine the integrity of such systems or processes, 
we will consider that conduct as a factor that may decrease the amount 
of any award.\78\ However, a principal purpose of Section 21F is to 
promote effective enforcement of the Federal securities laws by 
providing incentives for persons with knowledge of misconduct to come 
forward and share their information with the Commission. Although we 
acknowledge that internal investigations can be an important component 
of corporate compliance, and although there are existing incentives for 
companies to self-report violations,\79\ providing information to 
persons conducting an internal investigation, or simply being contacted 
by them, may not, without more, achieve the statutory purpose of 
getting high-quality, original information about securities violations 
directly into the hands of Commission staff.
---------------------------------------------------------------------------

    \78\ See Rule 21F-6(b)(3).
    \79\ See 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, 
Exchange Act Release No. 44969 (Oct. 23, 2001); U.S. Sentencing 
Guidelines Sec.  8C2.5.
---------------------------------------------------------------------------

    As noted, paragraph (1) of Rule 21F-4(a) provides that a 
whistleblower submission will not be deemed ``voluntary'' if made after 
we or another of the designated authorities have already contacted the 
whistleblower (or his or her representative) with an investigative or 
other covered request, inquiry, or demand that ``relates to the subject 
matter'' of the submission. This language is intended to provide 
clearer guidance than use of the word ``relevant'' in the proposed 
rule. The determination of whether an inquiry ``relates to the subject 
matter'' of a whistleblower's submission will depend on the nature and 
scope of the inquiry and on the facts and circumstances of each case. 
Generally speaking, however, we will consider this test to be met--and 
therefore the whistleblower's submission not to be ``voluntary''--even 
if the submission provides more information than was specifically 
requested, if it only describes additional instances of the same or 
similar conduct, provides additional details, or describes other 
conduct that is closely related as part of a single scheme. For 
example, if our staff sends an individual an investigative request 
relating to a possible fraudulent accounting practice, we would 
ordinarily not expect to treat as ``voluntary'' for purposes of Rule 
21F-

[[Page 34309]]

4(a) a subsequent whistleblower submission from the same individual 
that describes additional instances of the same practice, or a 
different but related practice as part of an overall earnings 
manipulation scheme.\80\ However, the individual could still make a 
``voluntary'' submission that described other, unrelated violations 
(e.g., Foreign Corrupt Practices Act violations).\81\
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    \80\ This is a separate analysis from the question of whether 
information will be deemed to have ``led to'' a successful 
Commission enforcement action. As is discussed below, even after we 
have commenced an investigation or an examination, a whistleblower 
who voluntarily submits original information may be eligible for an 
award if the information significantly contributes to the success of 
our action. See Rule 21F-4(c)(2).
    \81\ We have also added to paragraph (2) a statement that a 
whistleblower's submission of information to the Commission will be 
considered ``voluntary'' if the whistleblower voluntarily provided 
the same information to one of the other authorities identified in 
the rule prior to receiving a request, inquiry, or demand from the 
Commission. This language is intended to respond to comments that, 
as proposed, our rule could have had the unintended consequence of 
precluding a submission from being considered as ``voluntary'' in 
circumstances where the whistleblower provided the information to 
another authority, the other authority referred the matter to the 
Commission, and our staff contacted the whistleblower before he or 
she had the opportunity to file a whistleblower submission with us. 
See letter from Grohovsky Group.
---------------------------------------------------------------------------

    In further consideration of the views expressed that our proposed 
rule was overly-broad, and could result in precluding too many 
potential whistleblowers (e.g., in industry-wide investigations), we 
have decided not to adopt a rule that would treat a request to an 
employer as directed as well to all employees whose documents or 
information fall within the scope of the request. (This provision was 
found in paragraph (2) of Proposed Rule 21F-4(a), and is not part of 
final Rule 21F-4(a).) \82\ As a commenter stated, establishing this 
requirement as a threshold barrier to submissions could effectively 
``shut down'' our whistleblower program because ``any relevant 
documents or information would almost certainly be covered by an even 
marginally comprehensive investigative request.'' \83\ Thus, only a 
request that is directed to the individual involved (or to his or her 
representative) will preclude that individual from subsequently making 
a ``voluntary'' submission of the requested information or closely 
related information. We note, however, that as part of our 
determination of whether a submission leads to a successful enforcement 
action under Rule 21F-4(c), we expect to evaluate whether a previous 
request to the whistleblower's employer obtained substantially the same 
information, or would have obtained the information but for any action 
of the whistleblower in not providing the information to his or her 
employer. In such circumstances, we ordinarily would not expect to 
treat the whistleblower's submission as having ``significantly 
contributed'' to the success of our action for purposes of Rule 21F-
4(c)(2).
---------------------------------------------------------------------------

    \82\ This would include requests that are directed to a specific 
office or function of an employer where the whistleblower works.
    \83\ See letter from DC Bar.
---------------------------------------------------------------------------

    We have also decided to revise our proposed requirement that a 
submission will not be considered ``voluntary'' if the whistleblower is 
under a pre-existing legal or contractual duty to report the 
information to the Commission or to any of the other authorities 
designated in the rule. As adopted, Rule 21F-4(a)(3) provides that a 
whistleblower cannot ``voluntarily'' submit information if the 
whistleblower is required to report his or her original information to 
the Commission as a result of a pre-existing legal duty,\84\ a 
contractual duty that is owed to the Commission or to one of the other 
authorities set forth in paragraph (1), or a duty that arises out of a 
judicial or administrative order.
---------------------------------------------------------------------------

    \84\ Although in certain circumstances auditors have pre-
existing legal duties to report information about securities law 
violations to the Commission, for purposes of these rules, an 
auditor's eligibility for a whistleblower award will not be 
addressed under this rule, but will be addressed under Rules 21F-
4(b)(4)(iii) and (v) and Rule 8(c)(4).
---------------------------------------------------------------------------

    Unlike in the proposed rule, the final rule provides that a duty to 
report information only to an authority other than the Commission does 
not result in exclusion of the whistleblower.\85\ We have narrowed the 
reach of this provision out of concern that, as proposed, it was 
potentially vague and overbroad. Without a clearer and more specific 
description of the types of duties owed to these other authorities that 
might preclude a submission, the proposed rule could have the 
unintended consequence of discouraging some meritorious whistleblowers. 
In addition, we have adopted exclusions for specific types of 
individuals based on the definition of ``independent knowledge'' under 
Rule 21F-4(b)(4). Consistent with our approach of applying potential 
threshold exclusions narrowly, we intend this exclusion to govern only 
in cases where a whistleblower has an individual duty to report to the 
Commission, and not in cases where the duty belongs to the 
whistleblower's employer.
---------------------------------------------------------------------------

    \85\ As noted above, some commenters objected to the proposed 
rule on the grounds that Congress expressly only declared certain 
categories of whistleblowers to be ineligible as a result of their 
pre-existing legal duties. However, Congress did not define the term 
``voluntarily'' as used in Section 21F, instead leaving it to the 
Commission to interpret this term and others in a manner that 
furthers the statutory purposes. See Section 21F(j), 15 U.S.C. 78u-
6(j).
---------------------------------------------------------------------------

    Although this determination of ``voluntariness'' turns on whether 
the whistleblower is under a duty to report information to the 
Commission, the duty to report to the Commission can arise from a 
contract with either the Commission or with one of the other 
authorities identified in the rule. Thus, the rule would not consider 
as ``voluntary'' disclosures made by an individual who has entered into 
a cooperation or similar agreement with another authority, such as the 
Department of Justice, which requires the individual to cooperate with 
or provide information to the Commission, or more generally to 
government agencies. Further, the requirement that the contractual duty 
be owed to the Commission or to one of the other authorities means that 
whistleblowers will not be precluded from award eligibility if they are 
subject to a contractual duty to report information to the Commission 
because of an agreement with a third party. In other words, submissions 
from such whistleblowers will be treated as ``voluntary,'' assuming 
that the other requirements of this rule are satisfied. This 
clarification responds to the concerns of some commenters that 
employers should not be able to preclude their employees from 
whistleblower eligibility by generally requiring all employees to enter 
into agreements that they will report evidence of securities violations 
directly to the Commission.\86\
---------------------------------------------------------------------------

    \86\ See letters from Stuart D. Meissner and Georg Merkl.
---------------------------------------------------------------------------

    The rule also provides that a whistleblower submission will not be 
treated as ``voluntary'' if the whistleblower had a duty arising out of 
a judicial or administrative order to report the information to the 
Commission. This language covers persons such as independent monitors 
or consultants who may be appointed or retained as a result of 
Commission or other proceedings with a requirement that they report 
their findings, conclusions, or other information to the Commission.
    Finally, this rule will not apply to an employee or a third party 
who has a duty of some kind to report misconduct to a company, as we 
believe that a wholesale exclusion of whistleblower submissions in such 
cases would not effectuate the purposes of Section 21F.

[[Page 34310]]

2. Rule 21F-4(b)--Original Information
    As proposed, Rule 21F-4(b)(1) tracked the definition of ``original 
information'' found in Section 21F(a)(3) of the Exchange Act, with the 
added requirement that the information must be provided to the 
Commission for the first time after the date of enactment of Dodd-
Frank. We are adopting the rule as proposed.
a. Proposed Rule
    Our proposed rule defined ``original information'' to mean 
information that is: (i) Derived from the independent knowledge or 
independent analysis of the whistleblower; (ii) not already known to 
the Commission from any other source, unless the whistleblower is the 
original source of the information; (iii) 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; \87\ 
and (iv) provided to the Commission for the first time after July 21, 
2010 (the date of the enactment of Dodd-Frank). The first three 
requirements recited the definition of ``original information'' found 
in Section 21F(a)(3) of the Exchange Act. The fourth requirement made 
clear that awards would be considered only for original information 
submitted after the enactment of Section 21F.
---------------------------------------------------------------------------

    \87\ In our Proposing Release we stated that we will interpret 
the term ``judicial or administrative hearing'' to include hearings 
in arbitration proceedings. See Proposing Release note 19. One 
commenter expressed concern that this interpretation would prevent a 
plaintiff in arbitration from making a whistleblower submission on 
the basis of his allegations and the evidence adduced at the 
hearing. See letter from Stuart D. Meissner, LLC. However, in that 
instance, the plaintiff would qualify as the source of the 
allegations, and nothing in the definition of ``original 
information'' would preclude the plaintiff from using evidence 
adduced at the hearing to support his or her submission to the 
Commission. Rather, our inclusion of arbitration hearings within the 
scope of the rule would preclude others who are involved with the 
arbitration--such as the reporter, or an arbitrator--from using the 
plaintiff's allegations to make a whistleblower submission for their 
own benefit.
---------------------------------------------------------------------------

    Some of the elements of this definition--specifically, 
``independent knowledge,'' independent analysis,'' and ``original 
source''--are defined in other proposed rules, and are separately 
discussed below.
b. Comments Received
    Some commenters urged that our definition of ``original 
information'' be broadened in various ways. One commenter suggested 
that ``original information'' should include information that was 
provided to the Commission before the enactment of Dodd-Frank if the 
information leads to an enforcement action after the date of 
enactment.\88\ Another commenter offered that ``original information'' 
should include information an employee reports to his or her company 
and that is later reported to the Commission by the company.\89\ 
Similarly, another commenter expressed concern that, because ``original 
information'' must be information that is ``not already known'' to the 
Commission, the definition appeared to exclude subsequent 
whistleblowers who provide additional helpful information.\90\ This 
commenter urged that we not automatically exclude subsequent 
whistleblowers, but instead make an appropriate award allocation among 
the individuals involved.
---------------------------------------------------------------------------

    \88\ See letter from Bijan Amin; see also pre-proposal letter 
from James Hill.
    \89\ See letter from Hunton & Williams LLP.
    \90\ See letter from DC Bar.
---------------------------------------------------------------------------

    Other commenters believed that our definition of ``original 
information'' should be narrowed to exclude certain information from 
consideration for an award. Two commenters suggested that our rule 
exclude information beyond the statute of limitations period for 
actions to recover penalties.\91\ One of these commenters also urged 
that ``original information'' should not include information about a 
violation that has already been addressed by the entity that is alleged 
to have violated the securities laws.\92\
---------------------------------------------------------------------------

    \91\ See letters from ICI and SIFMA.
    \92\ See letter from ICI.
---------------------------------------------------------------------------

    Another commenter expressed concern that, as proposed, ``original 
information'' would not clearly exclude information a whistleblower 
receives as a result of an investigation by a securities exchange or 
other self-regulatory organization, a foreign regulator, or information 
received in connection with internal investigations or civil or 
criminal proceedings.\93\ This commenter urged that the rule be 
modified to exclude information derived from any investigative or 
enforcement activity or proceeding, and not merely the types of 
proceedings set forth in the statute (i.e., ``an allegation made in a 
judicial or administrative hearing, in a governmental report, hearing, 
audit, or investigation'').
---------------------------------------------------------------------------

    \93\ See letter from ABA.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are adopting Rule 21F-4(b)(1) as 
proposed. Congress enacted Section 21F in order to provide new 
incentives for individuals with knowledge of securities violations to 
report those violations to the Commission. We believe that applying 
Section 21F prospectively--for new information provided to the 
Commission after the statute's enactment and not to information 
previously submitted--is most consistent with Congressional intent and 
with the language of the statute.\94\ Similarly, we do not believe that 
it would be consistent with Congressional intent for our rules to 
categorically exclude through the definition of ``original 
information'' tips about violations that may arguably be beyond an 
applicable statute of limitations or that a company may have addressed 
through remedial action. Rather, considerations such as these are 
better addressed through our exercise of discretion in determining 
whether to open an investigation, whether to bring an enforcement 
action, and the nature and scope of any action filed and relief 
granted.
---------------------------------------------------------------------------

    \94\ Section 924(b) of Dodd-Frank provides that ``Information 
provided to the Commission in writing by a whistleblower shall not 
lose the status of original information * * *, if the information is 
provided by the whistleblower after the effective date of this 
subtitle.''
---------------------------------------------------------------------------

    In other respects, we believe that our final rules substantially 
address the issues raised by the commenters. For example, under Rules 
21F-4(b)(5) and (6) an individual can be considered the original source 
of information provided to the Commission by another source (including 
the individual's employer), or of information that ``materially adds'' 
to information already in our possession. Further, Rule 21F-4(c), as 
adopted, provides that a whistleblower may be eligible for an award 
based upon information that the whistleblower reports through a 
company's internal legal and compliance procedures if the company 
subsequently provides the information to the Commission. In addition, 
Rule 21F-4(c) provides that, even after an investigation has commenced, 
a whistleblower can be eligible for award consideration if he or she 
provides original information that significantly contributes to the 
success of the Commission's action. Thus, our rules will permit awards 
to subsequent whistleblowers in appropriate circumstances.
    Similarly, we believe that several provisions in our rules will 
ordinarily operate to exclude whistleblowers whose only source of 
original information is an existing investigation or proceeding. 
Information that is exclusively derived from a governmental 
investigation is expressly excluded from the definition of ``original 
information'' under Section 21F(a)(3) of the Exchange Act and our Rule 
21F-

[[Page 34311]]

4(b)(1)(iii). A whistleblower who learns about possible violations only 
through a company's internal investigation will ordinarily be excluded 
from claiming ``independent knowledge'' by operation of either the 
exclusions from ``independent knowledge'' set forth in Rules 21F-
4(b)(4)(i), (ii), and (iii) (relating to attorneys, auditors, and other 
persons who may be involved in the conduct of internal investigations), 
or by Rule 21F-4(b)(4)(vi) (excluding information learned from such 
individuals). To the extent that information about an investigation or 
proceeding is publicly available, it is excluded from consideration as 
``independent knowledge'' under Rule 21F-4(b)(2).\95\
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    \95\ Further, Form TCR, to be used for whistleblower 
submissions, requires the whistleblower to state, under penalty of 
perjury, how he or she obtained the information that is the subject 
of the submission. A truthful answer that the whistleblower obtained 
the information from an investigation by a securities exchange or a 
self-regulatory organization--if the staff were not already aware of 
the investigation--would likely lead the staff to contact the other 
authority directly for additional information. In these 
circumstances, where information is obtained through the normal 
cooperative arrangements between the Commission and other 
regulators, the whistleblower's submission would not be deemed to 
have caused the opening of an investigation, or to have 
significantly contributed to the success of any action, such as to 
make the whistleblower eligible for an award under Rule 21F-4(c).
---------------------------------------------------------------------------

 3. Rule 21F-4(b)(2)--Independent Knowledge
    Proposed Rule 21F-4(b)(2) defined ``independent knowledge,'' one of 
the constituent elements of ``original information,'' as factual 
information not derived from publicly available sources. We are 
adopting the rule as proposed.
a. Proposed Rule
    Under our proposed rule, ``independent knowledge'' was defined to 
mean factual information in the whistleblower's possession that is not 
derived from publicly available sources. As we explained in our 
Proposing Release, 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). Further, as proposed, the definition of 
``independent knowledge'' did not require that a whistleblower have 
direct, first-hand knowledge of possible violations. Instead, knowledge 
could be obtained from any of the whistleblower's experiences, 
observations, or communications (subject to the exclusion for knowledge 
obtained from public sources, and subject further to the exclusions set 
forth in Rule 21F-4(b)(4)).
b. Comments Received
    Several commenters supported our proposed definition of 
``independent knowledge.'' \96\ Others were critical of the definition 
for different reasons. Some commenters criticized our exclusion of 
information derived from publicly available sources, and urged that 
awards be available for tips that are based upon various kinds of 
public information.\97\ One of these commenters argued that, because 
Section 21F does not contain an express exclusion for all information 
derived from publicly available sources, the only public information 
that can be excluded from award consideration is information that is 
derived from the sources that are set forth in Section 21F(a)(3)(C)--
i.e., a judicial or administrative hearing, a government report, 
hearing, audit, or investigation, or the news media.\98\ This commenter 
stated that this interpretation would be consistent with the 
application of the ``public disclosure bar'' of the False Claims Act, 
31 U.S.C. Sec.  3730(e)(4)). Similarly, this commenter argued that our 
proposal to exclude publicly-available information from the definition 
of ``independent knowledge'' was unsupportable because the statute only 
excludes claims based upon information that is ``already known to the 
Commission.'' \99\
---------------------------------------------------------------------------

    \96\ See Letters from Institute of Internal Auditors, Patrick 
Burns, Auditing Standards Committee, Georg Merkl.
    \97\ See Letters from the VOICES, Wanda Bond, Michael Lawrence, 
and TAF; see also pre-proposal letter from Robin McLeish.
    \98\ See letter from TAF; see also letter from VOICES.
    \99\ Section 21F(a)(3)(B), 15 U.S.C. 78u-6(a)(3)(B). See letter 
from TAF.
---------------------------------------------------------------------------

    We requested comment on whether it is appropriate to consider 
knowledge that is not direct, first-hand knowledge as ``independent 
knowledge'' In response, one commenter urged that we limit 
``independent knowledge'' to first-hand knowledge of the 
whistleblower.\100\ This commenter expressed concerned about the 
reliability of second-hand information, and the potential that our rule 
could harm companies by creating an incentive for whistleblowers to 
report unsubstantiated rumors and other unreliable information. This 
commenter also suggested that the absence of a first-hand knowledge 
requirement would encourage circumvention of the statute by permitting 
persons who are ineligible for awards to give information to third 
persons in order to enable them to become whistleblowers.
---------------------------------------------------------------------------

    \100\ See letter from ABA.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are adopting Rule 21F-4(b)(2) as 
proposed. Accordingly, ``independent knowledge'' means any factual 
information in the whistleblower's possession that is not derived from 
publicly available sources. Congress primarily intended our 
whistleblower program ``* * * to motivate those with inside knowledge 
to come forward and assist the Government to identify and prosecute 
persons who have violated the securities laws * * *.'' \101\ It is 
consistent with this purpose to require that ``independent knowledge'' 
be derived from a whistleblower's own experiences, observations, or 
communications, and not from information that is available to the 
general public.\102\
---------------------------------------------------------------------------

    \101\ S. Rep. No. 111-176 at 110 (2010).
    \102\ However, publicly available information can be included as 
part of a submission of ``independent analysis'' under Rule 21F-
4(b)(3). See discussion below.
---------------------------------------------------------------------------

    The objection that our rule should permit submissions based upon 
public information as long as the information is not derived from a 
judicial or administrative hearing, a governmental report, hearing, 
audit, or investigation, or from the news media is not supported by the 
plain language of Section 21F. The definition of ``original 
information'' found in Section 21F(a)(3) requires both that the 
information be derived from the whistleblower's independent knowledge 
or analysis (Section 21F(a)(3)(A)), and that it also not be exclusively 
derived from an allegation in one of these fora (Section 21F(a)(3)(C)). 
If ``independent knowledge'' were interpreted to mean merely that the 
information could not be derived from one of the sources specified in 
Section 21F(a)(3)(C), then the separate requirement that the 
whistleblower also have ``independent knowledge'' would have no 
meaning.\103\
---------------------------------------------------------------------------

    \103\ The ``public disclosure bar'' of the False Claims Act 
operates differently. There, ``independent knowledge'' is not a 
separate requirement, but instead is one element of an exception to 
the rule that otherwise requires a court to dismiss an action if 
substantially the same allegations or transactions were publicly 
disclosed in certain specified fora, such as a Federal hearing in 
which the Government is a party, a Federal government report or 
investigation, or the news media. 31 U.S.C. 3730(e)(4).
---------------------------------------------------------------------------

    The same analysis applies to the suggestion that ``independent 
knowledge'' cannot exclude publicly-available information and can only 
exclude information that is ``not known to the Commission'' from any 
other

[[Page 34312]]

source. The requirement of ``independent knowledge'' is set forth in 
Section 21F(a)(3)(A) of the Exchange Act, and is distinct from the 
requirement in Section 21F(a)(3)(B) that information be not already 
known to the Commission. In other words, both tests must be met 
separately as part of the determination of whether information 
qualifies as ``original information.''
    While we thus exclude information derived from publicly available 
sources from the definition of ``independent knowledge,'' we do not 
believe that ``independent knowledge'' should be further limited to 
direct, first-hand knowledge. Such an approach could prevent the 
Commission from receiving valuable information about possible 
violations from whistleblowers who are not themselves involved in the 
conduct at issue, but who learn about it through their observations, 
relationships, or personal diligence.\104\ Our final rules provide 
that, in order to be considered eligible for an award, a whistleblower 
must provide information that is sufficiently specific, credible, and 
timely that it causes the staff to open an investigation, or 
significantly contributes to the success of an enforcement action.\105\ 
We believe that commenters' concerns about whistleblowers providing 
wholly speculative or unsubstantiated information is most effectively 
addressed in connection with these determinations rather than by 
requiring first-hand knowledge as a threshold limitation for 
whistleblower submissions.\106\
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    \104\ Further, as discussed in our Proposing Release, Congress 
recently amended the ``public disclosure bar'' provisions of the 
False Claims Act, replacing the requirement that a qui tam plaintiff 
have ``direct and independent knowledge'' of information with one 
requiring only ``knowledge that is independent and materially adds 
to the publicly-disclosed allegations or transactions * * *'' 31 
U.S.C. 3130(e)(4), Public Law 111-148 Sec.  10104(h)(2), 124 Stat. 
901 (Mar. 23, 2010). Courts generally defined ``direct knowledge'' 
to mean first-hand knowledge from the relator's own work and 
experience, with no intervening agency. E.g., United States ex rel. 
Fried v. West Independent School District, 527 F.3d 439 (5th Cir. 
2008); United States ex rel. Paranich v. Sorgnard, 396 F.3d 326 (3d 
Cir. 2005). Although, as noted in our Proposing Release, we do not 
believe that False Claims Act interpretations and precedent are 
necessarily authoritative for purposes of Section 21F, we note that 
Congress recently amended the False Claims Act to eliminate the 
requirement of first-hand knowledge.
    \105\ See Rule 21F-4(c), discussed below.
    \106\ We have addressed commenters' concern about possible 
collusion through our revised Rule 21F-8(c)(6).
---------------------------------------------------------------------------

4. Rule 21F-4(b)(3)--Definition of Independent Analysis
a. Proposed Rule
    Under Proposed Rule 21F-4(b)(3), ``analysis'' was defined to mean 
the whistleblower's own examination and evaluation of information that 
may be generally available, but which reveals information that is not 
generally known or available to the public. Analysis was defined as 
``independent'' if it was the whistleblower's own analysis, whether 
done alone or in combination with others. As was explained in our 
Proposing Release, this definition was intended to recognize 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.
b. Comments Received
    Although we received few responses to our request for comment on 
suggested alternative definitions of ``independent analysis,'' \107\ 
most commenters who addressed the proposed rule appeared to agree with 
the rule's fundamental premise that ``independent analysis'' 
anticipates that the whistleblower will apply his or her own evaluation 
and insight to information that may be derived from publicly available 
sources.\108\ Two commenters suggested we clarify that ``independent 
analysis'' can be based on public sources, including the sources 
described in Section 21F(a)(3)(C) and Proposed Rule 21F-
4(b)(1)(iii).\109\ One commenter criticized our proposed definition of 
``independent analysis'' on the ground that the requirement that 
analysis reveal information that is ``not generally known or 
available'' would preclude an award to a whistleblower who caused us to 
focus on publicly available information of which we were not otherwise 
aware.\110\ Another commenter urged that ``independent analysis'' be 
restricted to analysis of the whistleblower's own ``independent 
knowledge,'' defined by the commenter to be limited to first-hand 
knowledge, along with other purely objective facts such as share price 
or trading volume.\111\
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    \107\ See letters from Wanda Bond, Auditing Standards Committee, 
and Kurt S. Schulzke.
    \108\ See letters from Wanda Bond, Auditing Standards Committee, 
Kurt S. Schulzke, POGO (referencing the importance of whistleblowers 
``who often perform original analysis based on publicly available 
sources'').
    \109\ See letters from POGO and VOICES.
    \110\ See letter from TAF.
    \111\ See letter from ABA.
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c. Final Rule
    After considering the comments, we are adopting Rule 21F-4(b)(3) as 
proposed, with a slight modification to clarify that ``independent 
analysis'' can be based upon the whistleblower's evaluation of publicly 
available sources.\112\ Thus, as adopted, Rule 21F-4(b)(3) defines 
``analysis'' to mean the whistleblower's own examination and evaluation 
of information that may be publicly available, but which reveals 
information that is not generally known or available to the public.
---------------------------------------------------------------------------

    \112\ This would include public information that may be derived 
from the sources identified in Section 21F(a)(3)(C) and Rule 21F-
4(b)(1)(iii); i.e., a judicial or administrative hearing, a 
government report, hearing, audit, or investigation, or the news 
media.
---------------------------------------------------------------------------

    We believe that ``independent analysis'' requires that the 
whistleblower do more than merely point the staff to disparate publicly 
available information that the whistleblower has assembled, whether or 
not the staff was previously ``aware of'' the information. 
``Independent analysis'' requires that the whistleblower bring to the 
public information some additional evaluation, assessment, or insight.
    As with other elements of the definition of ``original 
information,'' we anticipate that whether ``independent analysis'' 
provided to the Commission may be eligible for award consideration will 
primarily depend (assuming all other requirements are met) on an 
evaluation of whether the analysis is of such high quality that it 
either causes the staff to open an investigation, or significantly 
contributes to a successful enforcement action, as set forth in Rule 
21F-4(c). This analysis is discussed further below.
    For reasons similar to those discussed above with respect to the 
definition of ``independent knowledge,'' we also do not believe it 
would be consistent with the purposes of Section 21F to restrict 
``independent analysis'' to analysis based upon facts of which the 
whistleblower has direct, first-hand knowledge. Such an interpretation 
would preclude award consideration even for highly-probative, expert 
analysis of data that may suggest an important new avenue of inquiry, 
or otherwise materially advance an existing investigation. We do not 
believe that Congress intended this result.
5. Rules 21F-4(b)(4)(i) through (vi)--Exclusions From Independent 
Knowledge and Independent Analysis
    Proposed Rules 21F-4(b)(4)(i) through (vii) described circumstances 
under

[[Page 34313]]

which we would not consider a whistleblower's submission to be derived 
from independent knowledge or independent analysis. We are adopting a 
number of these exclusions, but with significant revisions in response 
to comments that we received.\113\ These comments and the resulting 
modifications to the rules are discussed below with respect to the 
specific exclusions. In this section, we briefly address the exclusions 
as a whole.
---------------------------------------------------------------------------

    \113\ We have also added the phrase ``in any of the following 
circumstances'' in the opening clause of Rule 21F-4(b)(4) in order 
to make clear that information is excluded from being considered as 
``independent knowledge'' or ``independent analysis'' if any one of 
the exclusions apply.
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a. Proposed Rules
    As proposed, Rule 21F-4(b)(4) provided that the Commission would 
not credit a whistleblower with ``independent knowledge'' or 
``independent analysis'' where the whistleblower obtained the 
knowledge, or the information upon which the whistleblower's analysis 
was based, under certain circumstances. These included information that 
was: (1) Subject to attorney-client privilege or otherwise obtained in 
connection with the legal representation of a person or entity 
(proposed Rules 21F-4(b)(4)(i) and (ii)); (2) obtained through the 
performance of an engagement required under the securities laws by an 
independent public accountant, if the information related to a 
violation by the engagement client, or the client's officers, 
directors, or employees (proposed Rule 21F-4(b)(4)(iii)); (3) 
communicated to a person with legal, compliance, audit, supervisory, or 
governance responsibilities for an entity with the reasonable 
expectation that he or she would cause the entity to respond 
appropriately (proposed Rule 21F-4(b)(4)(iv)); (4) otherwise obtained 
through an entity's legal, compliance, audit, or similar functions or 
processes for identifying, reporting, and addressing potential non-
compliance with law (proposed Rule 21F-4(b)(4)(v)); (5) obtained in 
violation of Federal or state criminal law (proposed Rule 21F-
4(b)(4)(vi)); and (6) obtained from any of the persons excluded by Rule 
21F-4(b)(4). Certain of these exclusions were subject to exceptions 
that are discussed below in connection with the specific rules.
b. Comments Received
    Some commenters generally criticized our approach of defining 
exclusions from ``independent knowledge'' and ``independent analysis.'' 
These commenters argued that Section 21F does not permit any exclusions 
from award eligibility other than those expressly provided for in 
Section 21F(c)(2). They also expressed concern that the proposed 
exclusions were vague and uncertain, and therefore would discourage 
potential whistleblowers from taking the personal and professional 
risks associated with coming forward. These commenters also believed 
that the exclusions would operate to disqualify broad categories of 
individuals who are most likely to have information about 
misconduct.\114\
---------------------------------------------------------------------------

    \114\ See letters from TAF and NWC; see also letter from Stuart 
D. Meissner, LLC.
---------------------------------------------------------------------------

    In our Proposing Release, we requested comment on whether we should 
extend the exclusions from ``independent knowledge'' and ``independent 
analysis'' to other professionals (in addition to attorneys and 
independent public accountants) who may obtain information about 
possible securities violations in the course of their work for clients. 
A number of commenters urged that we do so. These commenters emphasized 
that boards and companies frequently retain outside consultants to 
advise them on matters such as compensation, business strategies, risk, 
and the effectiveness of their ethics and compliance programs. These 
commenters expressed concern that permitting such outside advisers and 
consultants to become whistleblowers will harm the free flow of candid 
advice and information that is necessary to these relationships.\115\
---------------------------------------------------------------------------

    \115\ See letters from NACD (advocating excluding individuals 
hired by boards of directors for purposes of advice and 
consultation); the Ethisphere Institute (exclusions should extend to 
external advisers who evaluate corporate ethics and compliance 
programs); GE Group (should exclude professionals that have 
relationships of trust and confidence with companies, including 
investment bankers, financial advisers, compensation consultants, 
and other consultants); TRACE International, Inc. (noting particular 
role of outside experts in FCPA compliance efforts, and advocating 
that exclusions include professionals who are regularly engaged by 
companies to assist with auditing, creating and implementing robust 
anti-bribery compliance programs and internal controls, including 
professionals who perform due diligence on third party relationships 
as required by the securities laws).
---------------------------------------------------------------------------

c. Final Rules
    After considering the comments, we have made several changes to the 
exclusions set forth in Rules 21F-4(b)(4)(i) through (vii), which we 
have renumbered as Rules 21F-4(b)(4)(i) through (vi). We have 
determined not to extend the exclusions to other outside professionals.
    We believe that the exclusions, as modified, are reasonable in 
scope and consistent with effective enforcement of the securities 
laws.\116\ The exclusions generally apply to narrow categories of 
individuals whose knowledge does not, in our view, constitute 
``independent knowledge or analysis of a whistleblower,'' because the 
information or analysis was acquired by an individual: (1) On behalf of 
a third party operating in a sensitive legal, compliance, or governance 
role (exclusions (i), (ii) and (iii)(A)-(C)); or (2) in the performance 
of an engagement required by the Federal securities laws (exclusion 
(iii)(D)); or (3) by illegal means (exclusion (iv)). Only when one of 
the exceptions to these exclusions set forth in the rules applies 
should information acquired in these situations constitute independent 
knowledge or analysis of the whistleblower.
---------------------------------------------------------------------------

    \116\ Section 21F does not define the terms ``independent 
knowledge'' or ``independent analysis,'' but Section 21F(j) 
authorizes the Commission to issue rules ``to implement the 
provisions of [Section 21F] consistent with the purposes of [Section 
21F].'' A substantial purpose of Section 21F is to promote effective 
enforcement of the securities laws.
---------------------------------------------------------------------------

    We believe this result is consistent with the purpose of promoting 
effective enforcement of the securities laws. Consultation with 
attorneys can improve compliance on the part of entities and 
individuals.\117\ The

[[Page 34314]]

recommended exclusions for certain company officials and third parties 
who assist companies in investigations of possible violations of law 
are narrowly focused, and promote the goal of ensuring that the persons 
most responsible for an entity's conduct and compliance with law are 
not incentivized to promote their own self-interest at the possible 
expense of the entity's ability to detect, address, and self-report 
violations. The exclusion for auditors performing engagements required 
by the securities laws reflects the fact that these individuals occupy 
a special position under the securities laws to perform a critical role 
for investors. Further, as adopted, our rule permits such individuals 
to become whistleblowers under certain circumstances.\118\
---------------------------------------------------------------------------

    \117\ A number of comments asserted that, in addition to the 
attorney-client privilege, any information received in breach of 
other confidential relationships recognized by common-law 
evidentiary privileges should be excluded from the definition of 
independent knowledge. See, e.g., joint letter from Alcoa Inc., 
Celanese Corporation, Citigroup, Ingersoll-Rand plc, Intel 
Corporation, Johnson & Johnson, JPMorgan Chase & Co., Kraft Foods 
Inc., Pfizer Inc., Prudential Insurance Company America, and Tyco 
International Ltd. (``Alcoa Group''); Auditing Standards Committee; 
TRACE International, Inc. But see letter from NWC (opposing any 
exclusion for privileged information). Those commenters generally 
took the position that these relationships have historically been 
recognized as deserving protection based on public policy 
considerations, and creating a monetary incentive for those holding 
this sort of privileged information to divulge it to us is contrary 
to those public policy considerations. We have determined to exclude 
(subject to the exceptions set forth in these rules) only 
information received in breach of the attorney-client privilege, not 
the other confidential relationships recognized at common-law. 
Although we recognize the significant public policies underlying all 
of these confidential relationships, we believe that for purposes of 
the whistleblower program the attorney-client privilege stands apart 
because of the significance of attorney-client communications for 
achieving compliance with the Federal securities laws. We will 
continue to address assertions of other evidentiary privileges 
through our normal investigative and litigation processes. See e.g., 
SEC Division of Enforcement Manual Sec.  3.3.1. In addition, 
contrary to the suggestion from a number of commenters, see, e.g., 
letter from PricewaterhouseCoopers, LLP (``PwC''), we are not 
excluding information that is received in breach of state-law 
confidentiality requirements, such as those imposed on auditors, 
because to do so could inhibit important Federal-law enforcement 
interests.
    \118\ See Rule 21F-4(b)(4)(vi). The exclusions for information 
obtained in violation of Federal or state criminal law and for 
information obtained from excluded sources are discussed below.
---------------------------------------------------------------------------

    Finally, although we recognize the important role that outside 
advisers and consultants play in many aspects of corporate policy and 
decision-making, we believe that additional exclusions for such 
professionals would too broadly preclude individuals with possible 
inside knowledge of violations from coming forward to assist the 
Commission in identifying and prosecuting persons who have violated the 
securities laws.
(a) Attorney-Client Privilege and Other Attorney Conduct
a. Proposed Rule
    As proposed, Rule 21F-4(b)(4)(i) excluded from the definition of 
``independent knowledge'' or ``independent analysis'' information that 
was obtained through a communication that is subject to the attorney-
client privilege. In addition, Proposed Rule 21F-4(b)(4)(ii) excluded 
from the definition of ``independent knowledge'' or ``independent 
analysis'' information that a potential whistleblower obtained as the 
result of the legal representation of a client on whose behalf the 
whistleblower's services, or the services of his or her employer or 
firm had been retained, unless the disclosure had been authorized as 
stated above. Neither of these exclusions applied where an attorney is 
permitted to disclose otherwise privileged information; for example, if 
the privilege has been waived or if the disclosure is permissible 
pursuant to the Commission's attorney conduct rules \119\ or applicable 
state statutes or bar rules governing the ethical behavior of 
attorneys.\120\
---------------------------------------------------------------------------

    \119\ 17 CFR 205.3(d)(2). This Commission Rule permits attorneys 
representing issuers of securities to reveal to the Commission 
``confidential information related to the representation to the 
extent the attorney reasonably believes necessary'' (1) to prevent 
the issuer from committing a material violation that is likely to 
cause substantial injury to the financial interest or property of 
the issuer or investors; (2) to prevent the issuer, in a Commission 
investigation or administrative proceeding, from committing perjury, 
suborning perjury, or committing any act that is likely to 
perpetrate a fraud upon the Commission; or (3) to rectify the 
consequences of a material violation by the issuer that caused, or 
may cause, substantial injury to the financial interest or property 
of the issuer or investors in the furtherance of which the 
attorney's services were used.
    \120\ E.g., California Evidence Code Sec.  956 (``There is no 
privilege under this article if the services of the lawyer were 
sought or obtained to enable or aid anyone to commit or plan to 
commit a crime or plan to commit a crime or fraud.'').
---------------------------------------------------------------------------

    The proposed exclusions in 21F-4(b)(4)(i) and (ii) recognized the 
prominent role that attorneys play in all aspects of practice before 
the Commission and the special duties they owe to clients. We observed 
that compliance with the Federal securities laws is promoted when 
individuals, corporate officers, and others consult with counsel about 
possible violations, and the attorney-client privilege furthers such 
consultation.\121\ This important benefit could be undermined if the 
whistleblower award program created monetary incentives for counsel to 
disclose information about possible securities violations in violation 
of their ethical duties to maintain client confidentiality.\122\
---------------------------------------------------------------------------

    \121\ See Upjohn Co. v. U.S., 449 U.S. 383, 389 (1981) (``[The 
attorney-client privilege's] purpose is to encourage full and frank 
communication between attorneys and their clients and thereby 
promote broader public interests in the observance of law and 
administration of justice.'').
    \122\ United States of America ex rel Fair Laboratory Practices 
Associates v. Quest Diagnostics, Inc., 2011 WL 1330542 (S.D.N.Y. 
Apr. 5, 2011) (emphasizing ``the great Federal interest in 
preserving the sanctity of the attorney-client relationship,'' the 
court dismissed a False Claims Act qui tam action brought by a 
partnership where the suit was based on attorney-client privileged 
information that one of the relator's partners, an attorney, 
disclosed in violation of New York's attorney ethics laws).
---------------------------------------------------------------------------

    The proposed exceptions for information obtained through privileged 
attorney-client communications and for information obtained in the 
legal representation of others did not apply, however, where the 
attorney is already permitted to disclose the substance of a 
communication that would otherwise be privileged. This included, 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.\123\
---------------------------------------------------------------------------

    \123\ See Model Rules of Professional Conduct 1.6(b), 1.13(c). 
Model Rule 1.6(b), variants of which have been adopted by nearly 
every state in the country and the District of Columbia, permits the 
disclosure of information relating to the representation of a 
client, among other things, where the lawyer reasonably believes the 
disclosure is necessary (1) to prevent reasonably certain death or 
substantial bodily harm; (2) to prevent the client from committing a 
crime or fraud that is reasonably certain to result in substantial 
injury to the financial interests or property of another and in 
furtherance of which the client has used or is using the lawyer's 
services; and (3) to prevent, mitigate or rectify substantial injury 
to the financial interests or property of another that is reasonably 
certain to result or has resulted from the client's commission of a 
crime or fraud in furtherance of which the client has used the 
lawyer's services. See Model Rule 1.6(b)(1)-(3). Model Rule 1.13(c) 
provides that where an attorney reports violations of law to the 
highest authority within an organization, and ``despite the lawyer's 
efforts * * * the highest authority that can act on behalf of the 
organization insists upon or fails to address in a timely and 
appropriate manner an action, or a refusal to act, that is clearly a 
violation of law, and (2) the lawyer reasonably believes that the 
violation is reasonably certain to result in substantial injury to 
the organization,'' the lawyer may reveal information relating to 
the representation., notwithstanding Rule 1.6, but only to the 
extent ``the lawyer reasonably believes necessary to prevent 
substantial injury to the organization.''
---------------------------------------------------------------------------

    The exclusions did not preclude an individual who has independent 
knowledge of facts indicating possible 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.
b. Comments Received
    The Commission received a number of comments related to the 
exclusions set forth in Proposed Rules 21F-4(b)(4)(i) and (ii). Most 
commenters were generally supportive of the exclusions for the reasons 
that we identified in our proposing release.\124\ A few commenters, 
however, asserted that the exclusions are unnecessary, and that instead 
we should rely upon judicial decisions and state bar opinions to decide 
on a case-by-case basis whether we could use information that would 
otherwise be covered by the proposed exclusions.\125\
---------------------------------------------------------------------------

    \124\ See, e.g., letters from NSCP; Grohovsky Group.
    \125\ See, e.g., letters from TAF; Stuart D. Meissner, LLC.
---------------------------------------------------------------------------

    Many commenters who were generally supportive of the exclusions 
suggested modifications.\126\ Several commenters recommended that the 
exclusions expressly apply to all information coming from

[[Page 34315]]

communications subject to the attorney-client privilege, whether or not 
the whistleblower was an attorney, because non-attorneys are often in 
possession of information that is subject to the privilege.\127\ Other 
commenters wanted us to modify the rules to ensure that we are not 
receiving privileged information.\128\ For example, one commenter 
requested that the rule explicitly state that we are not seeking 
privileged information, and, that if such information is provided to 
us, we will not argue that the privilege was waived.\129\ Other 
commenters recommended that the rule should exclude all information 
coming from communications with attorneys, even if the privilege had 
been waived.\130\
---------------------------------------------------------------------------

    \126\ See, e.g., letters from M.J. O'Loughlin; joint letter from 
Apache, Cardinal Health, Goodyear, HP, Merck, Microsoft, Proctor & 
Gamble, TRW, United Technologies (``Apache Group''); Financial 
Services Roundtable; and GE Group; Arent Fox LLP; CCMC.
    \127\ See letters from Apache Group; Financial Services 
Roundtable; and GE Group.
    \128\ See, e.g., letters from Arent Fox LLP; CCMC.
    \129\ See letter from Apache Group.
    \130\ See letter from NACD. See also letter from Eric Dixon, 
LLC.
---------------------------------------------------------------------------

    One commenter recommended that we narrow the scope of the 
exclusions so that, if the privileged information relates to an 
entity's wrong-doing and the entity does not appropriately handle the 
information, a whistleblower will be eligible for an award if he 
submits it to us.\131\
---------------------------------------------------------------------------

    \131\ Letter from the Institute of Internal Auditors.
---------------------------------------------------------------------------

c. Final Rule
    After reviewing the comments, we are adopting proposed Rules 21F-
4(b)(4)(i) and (ii) with several modifications.\132\
---------------------------------------------------------------------------

    \132\ In addition, we made several stylistic changes to Rules 
21F-4(b)(4)(i) and (ii) that do not affect the substance of either 
provision. We have replaced ``authorized'' with ``permitted'' in 
stating that attorney-client privileged information, or information 
learned from the legal representation of a client, may qualify as 
independent knowledge if its disclosure ``would otherwise be 
permitted by an attorney.'' See letter from M.J. O'Loughlin. We have 
also moved the phrase ``If you obtained the information'' from 
Proposed Rule 21F-4(b)(4) into both Rules 21F-4(b)(4)(i) and 
(b)(4)(ii).
---------------------------------------------------------------------------

    First, we have modified the language to clarify that both 
exclusions apply to non-attorneys. Thus, if an attorney in possession 
of the information would be precluded from receiving an award based on 
his or her submission of the information to us, a non-attorney who 
learns this information through a confidential attorney-client 
communication would be similarly disqualified. Correspondingly, if an 
attorney could submit the information to us under the same 
circumstances consistent with applicable state bar rules (e.g., based 
on waiver of the privilege or a crime-fraud exception), then a non-
attorney would similarly be eligible for an award for disclosing the 
information.
    Second, we have modified Rule 21F-4(b)(4)(ii) to clarify that it 
applies to attorneys who work in-house for an entity and provide legal 
services (e.g., attorneys in an entity's general counsel's office). The 
proposing rule may have been unclear about whether in-house attorneys 
would be covered by Rule 21F-4(b)(4)(ii) because language in the rule 
stated that the individual's services, or the services of his or her 
employer or firm, need to ``have been retained.'' Additional ambiguity 
was created by proposed Rule 21F-(4)(b)(4)(iv), which would have 
created a separate exclusion for individuals who have ``legal'' 
responsibilities for an entity. The changes to the final rule clarify 
our intention that all attorneys--whether specifically retained or 
working in-house--are eligible for awards only to the extent that their 
disclosures to us are consistent with their ethical obligations and our 
Rule 205.3.
    With regard to the comments that we ensure that whistleblowers are 
not providing us with privileged information, we believe that Rules 
21F-4(b)(4)(i) and (ii) sufficiently address this concern because these 
rules make clear that we will not reward attorneys or others for 
providing us with information that could not otherwise be provided to 
us consistent with an attorney's ethical obligations and Rule 
205.3.\133\ While some comments suggested expanding \134\ or narrowing 
\135\ the exclusions in Rules 21F(B)(4)(i) and (ii), we believe that 
the final rule strikes the right balance because these exclusions are 
consistent with the public policy judgments that have been made as to 
when the benefits of permitting disclosure are justified 
notwithstanding any potential harm to the attorney-client relationship.
---------------------------------------------------------------------------

    \133\ We have, however, modified Form TCR to ask whether the 
whistleblower's submission relates to an entity of which the 
whistleblower is or was a ``counsel.'' See Form TCR, Item D5a. In 
addition, we modified Item 8 on proposed form TCR to ask the 
whistleblower to identify with particularity any information 
submitted by the whistleblower that was obtained from an attorney or 
in a communication where an attorney was present. These questions 
will enhance the staff's ability to identify the risk of receiving 
privileged information and provide an appropriate way to balance the 
Commission's interest in receiving information with the policy goal 
of protecting the privilege. In addition, knowing this information 
may allow the staff to quickly segregate potentially privileged 
information for more detailed review and consideration.
    \134\ See, e.g., letter from NACD (suggesting that Rule 21F-
4(b)(4)(i) exclude all information coming from communications with 
attorneys, even if the privilege had been waived).
    \135\ See, e.g., letter from Institute of Internal Auditors 
(suggesting the exclusion for information subject to the attorney-
client privilege should be conditioned on the company in question 
having investigated and reported the violation in question, so that 
if the entity does not appropriately handle the information, an 
individual should be able to report the violation and participate in 
any whistleblower award).
---------------------------------------------------------------------------

    Nor do we agree with the comments suggesting that the exclusions 
are unnecessary because even if we receive attorney-client privileged 
information we can thereafter rely upon judicial opinions and ethics 
decisions to determine whether we can use it.\136\ In our view, the 
exclusions send a clear, important signal to attorneys, clients, and 
others that there will be no prospect of financial benefit for 
submitting information in violation of an attorney's ethical 
obligations.
---------------------------------------------------------------------------

    \136\ See letters from TAF; NSCP.
---------------------------------------------------------------------------

(b) Responsible Company Personnel, Compliance Processes, and 
Independent Public Accountants
    As proposed, Rule 21F-4(b)(4)(iii) excluded independent public 
accountants who obtained information through an engagement required 
under the Federal securities laws in certain circumstances. Proposed 
Rules 21F-4(b)(4)(iv) and (v) provided that certain responsible company 
officials and others who learned information through or in relation to 
a company's processes for identifying and addressing possible 
violations of law would not be able to use that information as the 
basis for a whistleblower submission, subject to certain exceptions set 
forth in the rules. We have made substantial changes to the proposed 
rules. As modified, we are adopting these provisions as Rules 21F-
4(b)(4)(iii) and (v).
(i) Proposed Rule 21F-4(b)(4)(iii)
a. Proposed Rule
    Proposed Rule 21F-4(b)(4)(iii) excluded from the definition of 
``independent knowledge'' or ``independent analysis'' information that 
was obtained through the performance of an engagement required under 
the securities laws by an independent public accountant, if that 
information related to a violation by the engagement client or the 
client's directors, officers or other employees. This proposed 
exclusion would have applied only if the information related to a 
violation by the engagement client or the client's directors, officers 
or other employees.
b. Comments Received
    We received many comments related to this rule. Several commenters 
submitted substantially similar comments about the proposed rule.\137\ 
Generally these commenters recommended expanding the statutory

[[Page 34316]]

exclusion to disqualify submissions that identified violations in 
connection with the firm's own conduct,\138\ as well as through the 
performance of non-audit services for audit clients,\139\ and audit or 
other services for non-public clients.\140\ These commenters cited to 
duties of confidence and reporting requirements to which independent 
public accountants are subject under state law and professional conduct 
codes, the importance of candor in the audit relationship, and 
practical problems associated with permitting employees of accounting 
firms to become whistleblowers in some relationship contexts but not in 
others.
---------------------------------------------------------------------------

    \137\ Letters from PwC; Ernst & Young; KPMG; the Center for 
Audit Quality.
    \138\ Letters from PwC; Ernst & Young; KPMG.
    \139\ Letters from PwC; Deloitte & Touche, LLP (``Deloitte''); 
KPMG.
    \140\ Letters from PwC; Deloitte; KPMG.
---------------------------------------------------------------------------

    One commenter urged that the exclusion for independent public 
accountants should also extend to information obtained by internal 
company personnel in connection with their role supporting an 
independent public accountant conducting an audit required under the 
securities laws.'' \141\
---------------------------------------------------------------------------

    \141\ Letter from ABA.
---------------------------------------------------------------------------

    One commenter similarly urged that the exclusion be extended to all 
employees who provide information at the request of auditors (both 
independent and internal) and observed that under the proposed rule 
company accountants providing information at the request of external 
auditors will still be considered to have ``independent knowledge and 
`independent analysis.'' \142\
---------------------------------------------------------------------------

    \142\ Letter from NACD.
---------------------------------------------------------------------------

    Another commenter expressed the view that independent public 
accountants (as well as attorneys) should be permitted to become 
whistleblowers, but with certain limitations.\143\ This commenter 
pointed out that a junior member of the team may not be able to effect 
change within a client if the senior members are unwilling to oppose 
management. According to this commenter, auditors and attorneys should 
be required to report violations internally first, have the ability to 
do so anonymously, and then be permitted to make a whistleblower 
submission to the Commission 75 days after making an internal report 
(but not later than 90 days after their report) if the entity does not 
respond appropriately.
---------------------------------------------------------------------------

    \143\ Letter from DC Bar.
---------------------------------------------------------------------------

    One commenter was concerned about circumstances where an 
independent public accounting firm might violate its duties to report 
under Exchange Act Section 10A.\144\ This commenter argued that 
proposed Rule 21F-4(b)(4)(iii) should be revised to permit 
whistleblowing when information about illegal acts is not reported to 
the Commission by the client or the public accounting firm within the 
time periods specified in Section 10A.
---------------------------------------------------------------------------

    \144\ Letter from TAF.
---------------------------------------------------------------------------

    Finally, as noted above, a number of commenters strongly objected 
in principle to all of our efforts to create exclusions from 
independent knowledge that are not expressly set forth in Section 21F, 
including those for independent public accountants.\145\
---------------------------------------------------------------------------

    \145\ Letters from NWC; NCCMP; Stewart D. Meissner, LLC; TAF.
---------------------------------------------------------------------------

(ii) Proposed Rules 21F-4(b)(4)(iv) and (v)
a. Proposed Rules
    Proposed Rule 21F-4(b)(4)(iv) excluded from the definitions of 
``independent knowledge'' and ``independent analysis'' information 
obtained by a person with legal, compliance, audit, supervisory, or 
governance responsibilities for an entity if the information was 
communicated to that person with the reasonable expectation that he or 
she would take appropriate steps to cause the entity to respond to the 
violation. Proposed Rule 21F-4(b)(4)(v) excluded information that was 
otherwise 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. Each rule 
was subject to an exception that made the exclusion inapplicable if the 
entity did not disclose the information to the Commission in a 
reasonable time, or proceeded in bad faith.
    As we explained in our Proposing Release, the rationale for these 
proposed exclusions was our interest in not implementing Section 21F in 
a way that created incentives for responsible persons who are informed 
of wrongdoing, or others who obtain information through an entity's 
legal, audit, compliance, and similar functions, to circumvent or 
undermine the proper operation of the entity's internal processes for 
responding to violations of law. We were concerned about 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, we proposed that these exclusions would no longer apply 
if the entity did not disclose the information to the Commission within 
a reasonable time or proceeded in bad faith, thereby making an 
individual who knew this information eligible to become a whistleblower 
based upon his or her ``independent knowledge'' of the violations.
b. Comments Received
    We received many comments expressing sharply different views on 
these rules. Several commenters expressed strong opposition to the 
proposed rules. Among other things, these commenters said that the 
proposed rules would preclude submissions from large numbers of 
individuals who were in the best position to know about misconduct at 
companies; that such deference to internal compliance processes is not 
warranted; that compliance and audit officials may be subject to 
retaliation, in particular in cases where senior management is 
implicated in wrongdoing; that the proposed rules were overly broad in 
their potential application to all supervisors and all employees who 
had any exposure to compliance and related processes even if the 
employee had other sources of knowledge; and that the exceptions to the 
proposed rules suffered from a lack of clarity that would make them 
unworkable in practice and would strongly discourage potential 
whistleblowers.\146\
---------------------------------------------------------------------------

    \146\ See letters from NWC; Stuart D. Meissner, LLC; Daniel J. 
Hurson; TAF; POGO; and Mark Thomas.
---------------------------------------------------------------------------

    Other commenters generally supported these exclusions in concept, 
but offered numerous and varied suggestions for expanding, clarifying, 
or modifying the proposed rules. For example, some recommended 
broadening the exclusions to encompass other categories of employees, 
or clarifying that the proposed rules would cover specific functions, 
including operations, finance, technology, credit, risk, and similar 
internal control functions; product management or other personnel 
responsible for independent valuations of positions at financial 
services firms; persons who perform the designated functions at 
subsidiaries or other units of an entity; persons involved in processes 
relating to required officer certifications and management disclosures 
under Sections 302, 404, and 906 of the Sarbanes-Oxley Act; and persons 
performing or supporting an internal audit function, including those 
individuals who may perform the functions of internal audit but whose 
job titles and responsibilities may differ.\147\
---------------------------------------------------------------------------

    \147\ See letters from ABA; SIFMA; Davis Polk; NSCP; and NACD.

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[[Page 34317]]

    Commenters also offered different views on the exceptions to the 
proposed rules permitting use of the excluded information if the entity 
failed to disclose the information to the Commission within a 
reasonable time or acted in bad faith. A number of commenters argued 
against the exceptions and in favor of an absolute preclusion of 
persons in the designated categories from becoming whistleblowers. 
These commenters generally took the view that the persons described in 
Proposed Rules 21F-4(b)(4)(iv) and (v) should promote a culture of 
compliance and should be required to utilize internal procedures and 
systems to address and report instances of noncompliance in all 
circumstances.\148\ Certain other commenters recommended that our rules 
provide that persons who have a legal, compliance, or similar function 
in a company would be ineligible for an award unless they have first 
reported the information to an entity's chief legal officer, chief 
compliance officer, or a member of the board of directors.\149\
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    \148\ See letters from Davis Polk; Jones Day; National 
Association of Criminal Defense Lawyers; Paul, Hastings, Janofsky & 
Walker LLP (``Paul Hastings''); Financial Services Roundtable; Alcoa 
Group; Michael Davis; Les M. Taeger; AT&T Inc.; Eric Dixon, LLC; 
Valspar; joint letter from Joseph Murphy, Esq., Donna Boehme, Esq., 
Rebecca Walker, Esq. (``Murphy''); Ethisphere Institute.
    \149\ See joint letter from U.S. Chamber of Commerce, Americans 
for Limited Government, Ryder Systems, Inc. Financial Services 
Institute, Inc., Verizon, White & Case, LLP (``Chamber of Commerce 
Group''); letters from AT&T National Association of Criminal 
Defense Lawyers and Apache Group; see also letter from DC Bar 
(suggesting that individuals in these categories be required to 
report violations internally first and wait 75 days for the entity 
to respond appropriately before they are eligible to become 
whistleblowers).
---------------------------------------------------------------------------

    A number of commenters took issue with the ``reasonable time'' 
language in Proposed Rules 21F-4(b)(4)(iv) and (v) and suggested 
alternative approaches for determining when persons described in the 
rules might be permitted to make whistleblower submissions.\150\ Many 
of these commenters argued that the ``reasonable time'' standard would, 
in practice, require companies to disclose all allegations of 
wrongdoing, regardless of considerations such as the materiality or 
credibility of the allegations, or the results of the company's 
investigation. Others pointed out that, because the standard lacked 
clarity, it would be difficult for persons in these categories to 
determine whether the company had disclosed the violation and whether 
it had done so within a ``reasonable time.'' Some commenters 
recommended that we define a ``reasonable time'' as some fixed period; 
e.g., 90-180 days.\151\
---------------------------------------------------------------------------

    \150\ See letters from ABA (eliminate ``reasonable time'' 
standard and only permit use of information in the event of bad 
faith); Society of Corporate Secretaries (same); DC Bar (require 
individuals in these categories to report violations internally 
first and wait 75 days for the entity to respond appropriately 
before they are eligible to become whistleblowers.); Cleary Gottlieb 
Steen & Hamilton LLP (replace ``reasonable time'' with ``reasonable 
and appropriately substantiated basis for believing that the company 
has failed to remediate the alleged problem or has acted in bad 
faith''); Apache Group (permit compliance personnel to become 
whistleblowers if company failed to investigate and remediate, 
including consideration of whether to self-report, within a 
reasonable time); Chamber of Commerce Group (permit personnel in 
these categories to use information only after reporting internally, 
and if company failed to disclose information concerning 
substantiated violations in a reasonable time).
    \151\ See letters from Patrick Burns, NACD, John G. Connolly, 
Auditing Standards Committee, Financial Services Roundtable.
---------------------------------------------------------------------------

    Finally, commenters from diverse perspectives shared the view that 
aspects of the proposed rules were vague and open to subjective 
interpretations. Some believed that the lack of clarity could have the 
effect of discouraging potential whistleblowers because they would not 
want to risk their livelihoods and reputations in the face of 
uncertainty concerning whether they might be eligible for an 
award.\152\ However, others suggested that vagueness would encourage 
persons in the categories designated in the proposed rules to make 
their own subjective determinations (for example, of whether a 
``reasonable time'' had passed), and would therefore prove disruptive 
to internal compliance mechanisms.\153\
---------------------------------------------------------------------------

    \152\ See letters from TAF, DC Bar, Daniel J. Hurson, Stuart D. 
Meissner LLC.
    \153\ See letters from ABA, Financial Services Roundtable, 
Society of Corporate Secretaries, Protiviti, Alcoa Group.
---------------------------------------------------------------------------

(iii) Final Rules 21F-4(b)(4)(iii) and (v)
    After considering the comments, we are adopting the proposed rules 
with substantial modifications. These provisions have been combined and 
are now set forth in Rules 21F-4(b)(4)(iii) and (v).
    As adopted, Rules 21F-4(b)(4)(iii)(A) through (C) address 
responsible company personnel with compliance-related responsibilities. 
Rule 21F-4(b)(4)(iii)(D) (in conjunction with Rule 21F-8(c)(4), 
discussed below) addresses independent public accountants.\154\ Rule 
21F-4(b)(4)(v) sets forth exceptions that apply to these exclusions. 
These rules are discussed separately below.
---------------------------------------------------------------------------

    \154\ We are addressing independent public accountants through 
the rules noted above instead of adopting proposed Rule 21F-
4(b)(4)(iii). Paragraph (D) of Rule 21F-4(b)(4)(iii), discussed 
below, excludes from the definition of independent knowledge or 
analysis information that an accountant learns because of his work 
on an engagement required under the Federal securities laws unless 
certain enumerated exceptions apply. Rule 21F-8(c)(4) makes a 
whistleblower ineligible from being considered for an award if the 
information is gained through an audit of financial statements 
required under the securities laws and the submission is ``contrary 
to the requirements of Section 10A * * * '' as provided for in 
Section 21F(c)(2)(C) (15 U.S.C. 78u-6(c)(2)(C)). After considering 
the competing views of commenters, we believe these provisions, 
taken together, strike a balance between the statute's goal of 
encouraging high quality submissions by whistleblowers and a policy 
of preventing auditors from getting a windfall from performing their 
duties.
---------------------------------------------------------------------------

a. Rules 21F-4(b)(4)(iii)(A) Through (C)
    As discussed above, we believe there are good policy reasons to 
exclude information from consideration as ``independent knowledge'' or 
``independent analysis'' in the hands of certain persons, and in 
certain circumstances, where its use in a whistleblower submission 
might undermine the proper operation of internal compliance systems. At 
the same time, we do not think it serves the purposes of Section 21F to 
apply this principle in a manner that creates expansive new exclusions 
for broad categories of company personnel (e.g., any supervisor, or any 
employee involved in control functions or in processes related to 
required CEO and CFO certifications). Instead, we believe that the 
better approach, and one consistent with Congressional intent, is to 
adopt more tailored exclusions for ``core'' persons and processes 
related to internal compliance mechanisms, and to enhance the 
incentives for employees to report wrongdoing through their company's 
established internal procedures.\155\
---------------------------------------------------------------------------

    \155\ With respect to enhanced incentives, as discussed below, 
we are adopting a rule that creates additional opportunities for 
employees to obtain whistleblower awards by reporting information 
through a company's internal whistleblower, legal, or compliance 
mechanisms before or at the same time that they file a whistleblower 
submission with us. See Rule 21F-4(c).
---------------------------------------------------------------------------

    In addition, we agree with the commenters who stated that greater 
clarity in these rules will assist both whistleblowers and companies. 
For this reason, we have identified by title or function specific 
categories of personnel to whom the rules apply.
    Thus, as adopted, Rules 21F-4(b)(4)(iii)(A) through (C) describe 
three categories of persons whom we will not treat as having 
``independent knowledge'' or ``independent analysis'' for purposes of a 
whistleblower submission, unless one of the exceptions listed in 
paragraph (b)(4)(vi) applies.\156\ The first category, set forth

[[Page 34318]]

in paragraph (A), is officers, directors, trustees, or partners of an 
entity if they obtained the information because another person informed 
them of allegations of misconduct, or they learned the information in 
connection with the entity's processes for identifying, reporting, and 
addressing potential non-compliance with law. The term ``officer'' is 
defined in Rule 3b-2 under the Exchange Act,\157\ and means ``a 
president, vice president, secretary, treasurer or principal financial 
officer, and any person routinely performing corresponding functions 
with respect to any organization whether incorporated or 
unincorporated.'' For example, a managing member of a limited liability 
company who performs these types of functions would ordinarily fall 
within this rule.
---------------------------------------------------------------------------

    \156\ Rule 21F-4(b)(4)(iii) only applies to the extent that an 
individual is not subject to any of the exclusions set forth in 
Rules 21F-4(b)(4)(i) or (ii). Thus, for example, if a company 
officer receives a report that is covered by attorney-client 
privilege, paragraph (i) would govern use of the information for 
purposes of our rules.
    \157\ 17 CFR 240.3b-2.
---------------------------------------------------------------------------

    This provision combines and modifies several concepts that were 
previously included in Proposed Rules 21F-4(b)(4)(iv) and (v). As 
noted, we have identified with greater specificity the persons who are 
covered by the rule. Further, instead of making the exclusion 
applicable when information is communicated to one of these persons 
``with the reasonable expectation that [the recipient] would take steps 
to cause the entity to respond appropriately to the violation,'' the 
rule applies whenever one of the designated persons is ``informed * * * 
of allegations of misconduct.'' Thus, when an officer or one of the 
other designated persons receives a report of possible illegal conduct, 
the rule applies without the recipient having to evaluate the 
``expectations'' of the person who made the report.\158\ We have also 
narrowed the scope of the proposed rule by removing non-officer 
supervisors from the list of designated persons. We agree with those 
commenters who stated that including all supervisors at any level would 
create too sweeping an exclusion of persons who may be in a key 
position to learn about misconduct, and that such an exclusion would 
not further the purposes of Section 21F.\159\
---------------------------------------------------------------------------

    \158\ See letter from ABA (noting problem of requiring the 
recipient of information to ascertain the ``reasonable expectation'' 
of the person who reported the information).
    \159\ See letter from TAF.
---------------------------------------------------------------------------

    Paragraph (A) does not preclude officers and the other designated 
persons from obtaining an award for a whistleblower submission in all 
circumstances. As noted, the rule applies when someone else informs a 
person in the designated categories about allegations of misconduct, or 
the designated individual learns the information in connection with the 
entity's processes for identifying, reporting, and addressing potential 
non-compliance with law.\160\ Examples include learning about a 
violation because an employee reports misconduct to the designated 
person, being informed of an allegation of misconduct that came into 
the company's hotline, or learning of a report from the company's 
auditors regarding a potential illegal act. Paragraph (A) is not 
intended to establish a general bar against officers, directors, and 
other designated persons becoming whistleblowers any time they observe 
possible violations at a company or other entity. For example, 
paragraph (A) does not prevent an officer from becoming eligible for a 
whistleblower award if the officer discovers information indicating 
that other members of senior management are engaged in a securities law 
violation.
---------------------------------------------------------------------------

    \160\ The phrase ``in connection with the entity's processes for 
identifying, reporting, and addressing potential non-compliance with 
law'' requires that the officer, director, or other designated 
individual learn the information through official responsibilities 
that relate to such processes.
---------------------------------------------------------------------------

    The second category of persons that Rule 21F-4(b)(4)(iii) excludes 
from the definitions of ``independent knowledge'' and ``independent 
analysis,'' as set forth in paragraph (B), are employees whose 
principal duties involve compliance or internal audit responsibilities, 
as well as employees of outside firms that are retained to perform 
compliance or internal audit work for an entity. For example, a 
compliance officer is subject to the rule whether he or she learns 
about possible violations in the course of a compliance review or 
another employee reports the information to the compliance officer. 
Unlike the proposed rule, the rule does not include a company's lawyers 
in either of paragraphs (A) or (B), because lawyers are subject to 
professional obligations in their dealings with clients, and these are 
specifically addressed in Rules 21F-4(B)(4)(i) and (ii).\161\
---------------------------------------------------------------------------

    \161\ See letter from SIFMA.
---------------------------------------------------------------------------

    Paragraph (C) of Rule 21F-4(b)(4)(iii) excludes information learned 
by employees or other persons associated with firms that are retained 
to conduct an internal investigation or inquiry into possible 
violations of law in circumstances (as noted above), where the 
information is not already excluded under Rules 21F-4(b)(4)(i) or (ii).
b. Rule 21F-4(b)(4)(iii)(D)
    Paragraph (D) of Rule 21F-4(b)(4)(iii) excludes information that is 
learned by employees of, or other persons associated with, a public 
accounting firm through an audit or other engagement required under the 
Federal securities laws, if that information relates to a violation by 
the engagement client or the client's directors, officers, or other 
employees. It only applies to those engagements which are not covered 
by Rule 21F-8(c)(4).
    Similar to other provisions under Rule 21F-4(b)(4), we are adopting 
this new paragraph based on our concern about creating incentives for 
independent public accountants to seek a personal financial benefit by 
``front running'' the firm's proper handling of information obtained 
through engagements required under the Federal securities laws. 
Examples include engagements for broker dealer annual audits pursuant 
to Rule 17a-5 under the Exchange Act \162\ and compliance with the 
custody rule by advisors.\163\
---------------------------------------------------------------------------

    \162\ See Sec.  240.17a-5.
    \163\ See Sec.  275.206(4)-2.
---------------------------------------------------------------------------

    Paragraph (D), however, does not limit an individual from making a 
specific and credible submission alleging that the public accounting 
firm violated the Federal securities laws or professional 
standards.\164\ If a whistleblower makes such an allegation, and if 
that submission leads to a successful action against the engagement 
client, its officers, or employees, then the whistleblower can obtain 
an award for that action as well. Moreover, this exclusion does not 
apply whenever the facts and circumstances fall within the scope of 
exceptions contained in Rule 21F-4(b)(4)(v).
---------------------------------------------------------------------------

    \164\ See infra discussion of Rule 21F-8(c)(4).
---------------------------------------------------------------------------

c. Rule 21F-4(b)(4)(v)
    Rule 21F-4(b)(4)(v) sets forth exceptions to the application of 
Rule 21F-4(b)(4)(iii). If any one of these circumstances is present, a 
person in one of the designated categories under Rule 21F-4(b)(4)(iii) 
may be eligible for a whistleblower award using information that is 
otherwise excluded to that individual by operation of Rule 21F-
4(b)(4)(iii).
    The first exception to the operation of Rule 21F-4(b)(4)(iii) 
applies when the designated person has a reasonable basis to believe 
that disclosure of the information to the Commission is necessary to 
prevent the relevant entity from engaging in conduct that is likely to 
cause substantial injury to the financial interest or property of the 
entity or investors.\165\ For purposes of

[[Page 34319]]

Rule 21F-4(b)(4)(v), in order for a whistleblower to claim a reasonable 
belief that disclosure of information to the Commission is necessary to 
prevent the relevant entity from committing substantial harm, we expect 
that in most cases the whistleblower will need to demonstrate that 
responsible management or governance personnel at the entity were aware 
of the imminent violation and were not taking steps to prevent it. In 
short, the whistleblower must have a reasonable basis for believing 
that the entity is about to engage in conduct that is likely to cause 
substantial injury to the financial interests of the entity or 
investors, and that notification to the Commission is necessary to 
prevent the entity from engaging in that conduct. In such cases, we 
believe it is in the public interest to accept whistleblower 
submissions and to reward whistleblowers--whether they are officers, 
directors, auditors, or similar responsible personnel--who give us 
information that allows us to take enforcement action to prevent 
substantial injury to the entity or to investors.
---------------------------------------------------------------------------

    \165\ This provision is similar to the standard that governs the 
circumstances in which an attorney appearing and practicing before 
the Commission in the representation of an issuer may reveal 
confidential information related to the representation without the 
issuer's consent. See 17 CFR 205.3(d). However, we have not included 
a requirement of a ``material violation,'' as is found in the 
attorney conduct rule. As most whistleblowers under this provision 
will not be attorneys, we have decided not to require that they make 
legal judgments about whether a material violation has occurred, but 
simply consider whether they have a reasonable basis to believe that 
a report to the Commission is necessary to prevent conduct that is 
likely to cause substantial injury to the financial interest or 
property of the entity or investors.
---------------------------------------------------------------------------

    The second exception to the operation of Rule 21F-4(b)(4)(iii) 
applies when the designated person has a reasonable basis to believe 
that the entity is engaging in conduct that will impede an 
investigation of the misconduct. Our proposed rule included a similar 
exception for the entity's ``bad faith,'' and the language, as adopted, 
is intended to make this standard clearer. Thus, for example, an 
officer or other individual covered by Rule 21F-4(b)(4)(iii) is not 
subject to the exclusion of that paragraph if he or she has a 
reasonable basis to believe that the entity is destroying documents, 
improperly influencing witnesses, or engaging in other improper conduct 
that may hinder our investigation.
    Finally, under the third exception to Rule 21F-4(b)(4)(iii), an 
officer, director, auditor or one of the other designated persons can 
become a whistleblower after at least 120 days have elapsed since the 
whistleblower provided the information to the audit committee, chief 
legal officer, or chief compliance officer (or their equivalents) of 
the entity at which the violation occurred, or to his or her 
supervisor, or since the whistleblower received the information, if he 
or she received it under circumstances indicating that the entity's 
audit committee, chief legal officer, chief compliance officer (or 
their equivalents), or his or her supervisor was already aware of the 
information. As noted above, many commenters criticized as too vague 
and unpredictable our proposed rule that would have permitted one of 
the designated persons to make a whistleblower submission if an entity 
failed to disclose the information to the Commission within a 
reasonable time. In response to these comments, we have instead adopted 
an exception that will permit a person in one of the designated 
categories to become a whistleblower after a fixed period.
    The 120-day period begins to run either from the date the 
whistleblower informed other senior responsible persons at the entity, 
or his or her supervisor, about the violations, or from the date the 
whistleblower received the information, if the whistleblower was aware 
that these other persons already knew of the violations. Thus, an 
officer, director, or other designated person cannot receive a report 
of misconduct, and keep silent about it while waiting for the 120-day 
period to run, in order to become eligible for a whistleblower award.
    The inclusion of a fixed 120-day period is intended for the benefit 
of potential whistleblowers, so that they will have a date certain 
after which they will no longer be ineligible to make a submission 
based upon the information in their possession. It is not intended to 
suggest to entities that they have a 120-day ``grace period'' for 
determining their response to the violations. Furthermore, when 
considering whether and to what extent to grant leniency to entities 
for cooperating in our investigations and related enforcement actions, 
the promptness with which entities voluntarily self-report their 
misconduct to the public, to regulatory agencies, and to self-
regulatory organizations is an important factor.\166\
---------------------------------------------------------------------------

    \166\ See 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, SEC 
Rel. Nos. 34-44969 and AAER-1470 (Oct. 23, 2001) (http://www.sec.gov/litigation/investreport/34-44969.htm.)
---------------------------------------------------------------------------

    At the same time, it is important to note that this rule is not 
intended to, and does not, create any new or special duties of 
disclosure on entities to report violations or possible violations of 
law to the Commission or to other authorities. The provisions of this 
rule are solely designed to provide greater specificity to certain 
types of potential whistleblowers about the circumstances in which 
their submissions will or will not make them eligible to receive an 
award.
    Nor do we intend to suggest that an internal investigation should 
in all cases be completed before an entity elects to self-report 
violations, or that 120 days is intended as an implicit ``deadline'' 
for such an investigation. Companies frequently elect to contact the 
staff in the early stages of an internal investigation in order to 
self-report violations that have been identified. Depending on the 
facts and circumstances of the particular case, and in the exercise of 
its discretion, the staff may receive such information and agree to 
await further results of the internal investigation before deciding its 
own investigative course. This rule is not intended to alter this 
practice in the future.
(c) Rule 21F-4(b)(4)(iv)--Conviction for Violations of Law

a. Proposed Rule

    Proposed Rule 21F-4(b)(4)(iv) excluded from the definition of 
``independent knowledge'' information that a whistleblower obtained by 
a means or in a manner that violates applicable Federal or state 
criminal law. We explained our preliminary view that a whistleblower 
should not be rewarded for violating a Federal or state criminal law.
b. Comments Received
    Comments on this proposal were divided. Several commenters argued 
that the proposal went too far in excluding information provided by 
whistleblowers.\167\ One commenter explained that the exclusion would 
raise difficult questions involving state or Federal criminal law, 
including who would decide whether evidence was gathered in violation 
of State or Federal criminal law and under what standard of 
proof''.\168\
---------------------------------------------------------------------------

    \167\ See, e.g., letters from Stuart D. Meissner, LLC; False 
Claims Act Legal Center; NWC; Kurt Schulzke; Patrick Burns.
    \168\ See letter from Stuart D. Meissner, LLC.
---------------------------------------------------------------------------

    Another commenter stated that the Government has historically been 
permitted to use documents without concern for how a whistleblower 
obtained them as long as the Government did not direct a whistleblower 
to take documents \169\ and there is no reason to bar a whistleblower

[[Page 34320]]

from obtaining an award if the Government would be permitted to use 
those documents.
---------------------------------------------------------------------------

    \169\ See letter from False Claims Act Legal Center. See also 
letter from Patrick Burns.
---------------------------------------------------------------------------

    Several commenters were supportive of the exclusion.\170\ One, for 
example, stated that, even if additional securities law violations 
might be uncovered by illegal acts, the result would be to undermine 
respect for the rule of law.\171\ Another commenter recommended that 
the exclusion should go beyond domestic criminal law violations to 
include, among other things, state and Federal civil law.\172\
---------------------------------------------------------------------------

    \170\ See, e.g., letters from the NSCP; the American Accounting 
Association; GE Group. See also letter from Wanda Bond.
    \171\ See letter from the NSCP.
    \172\ See letter from Financial Services Roundtable.
---------------------------------------------------------------------------

    With respect to whether the exclusion should extend to violations 
of foreign criminal law, comments were divided.\173\ One commenter 
stated that, without such an exclusion, individuals might be encouraged 
to break the laws of foreign countries by the prospect of a 
whistleblower award.\174\ Other commenters urged the Commission not to 
extend the exclusion to violations of foreign criminal laws. One 
commenter, for example, argued that there may be situations in which a 
violation of a foreign criminal law is not a violation of a U.S. 
Federal or state law, and that in such situations a whistleblower 
should be able to obtain an award.\175\
---------------------------------------------------------------------------

    \173\ Compare letters from Financial Services Roundtable, 
American Accounting Association, National Society of Corporate 
Responsibility, TRACE International, Inc. (supporting extending 
exclusion to violations of foreign law); with letters from VOICES, 
POGO, and Georg Merkl (opposing extending exclusion to violations of 
foreign law).
    \174\ See letter from TRACE International, Inc. See also, e.g., 
letters from the American Accounting Association; Financial Services 
Roundtable; NSCP.
    \175\ See letter from POGO. See also letters from VOICES and 
Georg Merkl.
---------------------------------------------------------------------------

    In addition, commenters were sharply divided on whether we should 
exclude information obtained in violation of a judicial or 
administrative protective order.\176\ Commenters that supported the 
exclusion expressed concern that trade secrets and other sensitive 
information might be disclosed if we were to permit awards for 
information provided in violation of judicial or administrative protect 
orders.\177\ Other commenters expressed a general concern that 
protective orders are often negotiated between the parties and entered 
in private litigation as a way to protect proprietary information and 
should not operate to shield from the Commission information related to 
securities law violations.\178\
---------------------------------------------------------------------------

    \176\ Pursuant to Rule 21F-17(a), protective orders entered in 
SRO proceedings may not be used to prohibit parties from providing 
the Commission with information about a possible securities law 
violation.
    \177\ See, e.g., letters from Alcoa Group; Financial Services 
Roundtable; and GE Group.
    \178\ See, e.g., letters from VOICES; Georg Merkl; Patrick 
Burns.
---------------------------------------------------------------------------

c. Final Rule
    After reviewing the comments, we have decided to adopt the proposed 
rule, renumbered as Rule 21F-4(b)(4)(iv), but with a modification. 
Under Rule 21F-4(b)(4)(iv), a whistleblower's information will be 
excluded from the definition of ``independent knowledge'' if he or she 
obtained the information by a means or in a manner that is determined 
by a domestic court to violate applicable Federal or state criminal 
law.\179\
---------------------------------------------------------------------------

    \179\ This exclusion is also supported by Section 21F(c)(2)(B) 
of the Exchange Act.
---------------------------------------------------------------------------

    We continue to believe that this exclusion is consistent with the 
intent of Congress that the whistleblower award program not be used to 
encourage or reward individuals for obtaining information in violation 
of Federal or state criminal law--even if the information might 
otherwise assist our enforcement of the Federal securities laws. 
Nonetheless, we have decided that the exclusion will only apply where a 
domestic court determines that the whistleblower obtained the 
information in violation of Federal or state criminal law.\180\ We 
believe that Federal and state courts are better positioned than we are 
to determine whether a whistleblower obtained the information in 
violation of criminal law.
---------------------------------------------------------------------------

    \180\ If a criminal case is pending or known to be contemplated 
against a whistleblower, we may defer decision on an award 
application until the criminal matter is resolved.
---------------------------------------------------------------------------

    We have determined not to extend the exclusion to cover information 
obtained in violation of domestic civil or foreign law, or judicial or 
administrative protective orders. Commenters raise a number of 
persuasive points supporting and opposing these additional exclusions. 
With respect to foreign law, we recognize that other countries often 
have legal codes that vary greatly from our own, and we are not in a 
position to decide as a categorical rule when it is appropriate to deny 
an award based on foreign law.\181\ With respect to material that may 
have been obtained in violation of domestic civil law, we believe that, 
on balance, these exclusions would sweep too broadly and be difficult 
to apply consistently given the patchwork of state and municipal civil 
laws that might be implicated.
---------------------------------------------------------------------------

    \181\ While the proposed rule does not extend the exclusion to 
information obtained or disclosed in violation of foreign law, we 
recognize that potential whistleblowers in foreign jurisdictions may 
have obligations to comply with applicable foreign laws. For 
instance, some foreign jurisdictions impose criminal penalties for 
unlawfully obtaining certain information or for unlawfully 
disclosing certain information to authorities outside their borders.
---------------------------------------------------------------------------

    Finally, we find persuasive the comments that protective orders are 
frequently negotiated between parties to private litigation and are 
generally intended to protect proprietary information against public 
disclosure or improper use. It would be against public policy for 
litigants to obtain a protective order, or to seek enforcement of such 
an order, for the purpose of preventing the disclosure of information 
regarding violations of law to a law enforcement agency. For this 
reason, we have determined not to exclude whistleblowers who provide us 
with information that an opposing party may contend comes within the 
scope of a protective order.
(d) Rule 21F-4(b)(4)(vi)--Information Obtained From Excluded Persons
    Proposed Rule 21F-4(b)(4)(vii) excluded persons from making 
whistleblower submissions based upon information they obtained from 
other persons in whose hands the same information would be excluded as 
``independent knowledge'' or ``independent analysis.'' We are adopting 
the proposed rule with slight modifications to respond to comments and 
to increase clarity. This provision is now set forth at Rule 21F-
4(b)(4)(v).
a. Proposed Rule
    The proposed rule provided that we would not treat a whistleblower 
submission as derived from ``independent knowledge'' or ``independent 
analysis'' if the whistleblower obtained the information on which the 
submission was based from any of the individuals described in Proposed 
Rules 21F-4(b)(4)(i) through (vi) (the other exclusion provisions).
b. Comments Received
    One commenter expressed the view that the proposed rule effectively 
created a ``hearsay'' exception to the whistleblower provisions that 
could produce unintended results.\182\ The commenter offered the 
example of an employee who overhears a conversation in which a 
compliance officer admits to participation in a Ponzi scheme. Under the 
proposed rule, the commenter pointed out, the employee would be 
ineligible to receive a whistleblower award.
---------------------------------------------------------------------------

    \182\ See letter from NWC.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are adopting a modified version 
of the

[[Page 34321]]

rule. As adopted, Rule 21F-4(b)(vi) provides that a submission will not 
be deemed to be derived from ``independent knowledge'' or ``independent 
analysis'' if the whistleblower obtained the information for the 
submission from a person who is subject to this section unless the 
information is not excluded from that person's use, or the 
whistleblower is providing the Commission with information about 
possible violations involving that person.
    We added the phrase ``unless the information is not excluded from 
that person's use'' to the proposed rule in order to clarify that Rule 
21F-4(b)(4)(vi) is intended to be purely derivative; i.e., if the 
person from whom the information was obtained is free to use the 
information in a submission (for example, pursuant to the exceptions 
for officers, directors, auditors and others found in Rule 21F-
4(b)(4)(v)), then this rule does not bar use of the information. In 
order to address the potential for the unintended consequence suggested 
in the comment, we also added the proviso that this exclusion does not 
apply if the whistleblower is providing information about violations 
involving the person from whom the information was obtained.
    We expect that Rule 21F-4(b)(4)(vi) will work in tandem with the 
other exclusions set forth in Rule 21F-4(b)(4) to preclude submissions 
in a limited set of circumstances. Thus, for example, if an employee 
only learns about possible violations because he or she is interviewed 
in the course of a company internal investigation, Rule 21F-4(b)(4)(vi) 
will not permit that employee to file a whistleblower submission 
claiming the information as his or her ``independent knowledge'' or 
``independent analysis''.\183\ Similarly, if a senior company officer, 
after receiving a report concerning possible securities violations, 
gives the information to his or her assistant, the assistant will not 
be able to seek an award based on the information as long as the 
officer is barred from doing so.
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    \183\ This assumes that the employee learns the information in 
the interview from an attorney or other person subject to Rules 21F-
4(b)(4)(i) or (ii), or from someone subject to Rule 21F-
4(b)(4)(iii)(C). Depending on all of the facts and circumstances, 
the employee could also be directly excluded under Rule 21F-
4(b)(4)(i) if the interview is determined to be covered by the 
attorney-client privilege.
---------------------------------------------------------------------------

6. Rule 21F-4(b)(5)--Original Source
    Proposed Rule 21F-4(b)(5) described how we would determine if a 
whistleblower was the ``original source'' of information that we 
received from another source. We are adopting the rule as proposed, 
with a slight modification to maintain consistency with other rule 
changes.
a. Proposed Rule
    The proposed rule provided that we would consider a whistleblower 
to be the ``original source'' of the same information that we obtained 
from another source if the information satisfied the definition of 
original information and the other source obtained the information from 
the whistleblower or the whistleblower's representative. If the 
whistleblower claimed to be the ``original source'' of information 
provided to us by any of the authorities set forth in Proposed Rule 
21F-4(a) (relating to the ``voluntary'' submission of information), 
then the whistleblower would be required to have ``voluntarily'' 
provided the information to the other authority within the meaning of 
Proposed Rule 21F-4(a).
    The proposed rule also required that the whistleblower establish 
his or her status as the original source of information to our 
satisfaction. In the event that the whistleblower claimed to be the 
original source of information provided to us by one of the authorities 
set forth in the rule or by another entity (including the 
whistleblower's employer), the proposed rule further stated that we 
might seek assistance and confirmation of the whistleblower's status 
from the other entity.
b. Comments Received
    The few comments we received on this proposed rule primarily sought 
clarification on its application to particular circumstances.
    One commenter requested that we clarify the situation in which one 
person makes a submission based upon information obtained from a second 
person, and the second person (the original source of the information) 
later submits the same information.\184\ Another commenter noted the 
potential for inequity that may result if the person who makes the 
first whistleblower submission is later displaced from award 
eligibility because the second submitter (e.g., the first person's 
supervisor) claims to be ``the original source'' of information 
submitted by the first person. The commenter expressed concern that the 
second submitter might obtain the award, to the exclusion of the first 
person, even though the second person may have known about the 
violations for an extended period, done nothing to stop them, and only 
made a submission after learning about the first person's 
submission.\185\
---------------------------------------------------------------------------

    \184\ See letter from SIFMA.
    \185\ See letter from TAF.
---------------------------------------------------------------------------

    Another commenter suggested we make clear that if an individual 
reports misconduct through a company's internal compliance or other 
reporting processes, and the company subsequently self-reports the 
violations to the Commission, the individual will be eligible for an 
award as the ``original source'' of the information reported by the 
company.\186\
---------------------------------------------------------------------------

    \186\ See letter from Baron & Budd, P.C.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are adopting Rule 21F-4(b)(5) as 
proposed with a slight modification to conform to other rule changes. 
Specifically, we are modifying the list of governmental and other 
authorities set forth in the rule to conform to the revised list set 
forth in Rule 21F-4(a) (see discussion above).
    In addition, we provide the following clarifications to address the 
comments. As the language of our rule indicates, if B makes a 
whistleblower submission based upon information obtained from A, and A 
later makes his or her own submission of that information, then A will 
be considered the ``original source'' of the information (assuming that 
A establishes his or her status as the original source and that the 
information otherwise qualifies as ``original information'').\187\
---------------------------------------------------------------------------

    \187\ This does not by itself mean that an award is due. The 
submitter must still satisfy all of the other requirements of 
Section 21F and of our rules, including that the information was 
submitted voluntarily, it led to a successful Commission enforcement 
action or related action, and the submitter is not ineligible for an 
award.
---------------------------------------------------------------------------

    However, A's status as the ``original source'' of the information 
does not exclude B from award eligibility. In this example, because B 
obtained the facts underlying his or her submission from A, and those 
facts were not derived from publicly available sources, B would also be 
deemed to have submitted information derived from his or her 
``independent knowledge.'' Thus, both submissions could qualify as 
``original information;'' B's because he or she was first to bring the 
Commission information derived from ``independent knowledge,'' and A's 
because he or she was the ``original source'' of information that, as 
of B's submission, was already known to the Commission.
    Further, by virtue of being first-in-time, B may have an advantage 
over A. If B's submission were sufficiently specific, credible, and 
timely that it caused us to open an investigation, and if a successful 
enforcement action

[[Page 34322]]

resulted, then we would consider whether B's submission ``led to'' our 
successful action under the lower standard set forth in Rule 21F-
4(c)(1). Correspondingly, if A made his or her submission after we were 
already investigating the matter that B brought to us, then A's 
information would be evaluated under Rule 21F-4(c)(2), and A would have 
to meet the additional requirement that his or her information 
``significantly contributed'' to the success of the action. In this 
regard, we note that A would also be considered the ``original source'' 
of any additional information he or she provided that materially added 
to our base of knowledge.\188\
---------------------------------------------------------------------------

    \188\ See Rule 21F-4(b)(6).
---------------------------------------------------------------------------

    An individual can also be the ``original source'' of information 
that we receive from an entity, including, for example, other 
government authorities, the whistleblower's employer, or other entities 
to which the individual may report misconduct. For example, an 
individual would be the original source of information provided to the 
Commission by his or her employer if the individual reports possible 
violations in the first instance through his or her employer's internal 
whistleblower, legal, or compliance procedures for reporting 
allegations of possible violations of law, the company later self-
reports the individual's information to the Commission, and the 
individual thereafter files a whistleblower submission. In fact, as is 
further described below, our final rules seek to enhance the incentives 
for employees to utilize their company's internal reporting systems, 
and we provide a clear alternate path for persons who do so to be 
considered eligible for an award if the company later self-reports 
violations to the Commission as result of the individual's internal 
report.\189\
---------------------------------------------------------------------------

    \189\ See Rules 21F-4(b)(7) and 4(c).
---------------------------------------------------------------------------

7. Rule 21F-4(b)(6)--Original Source; Additional Information
a. Proposed Rule
    Proposed rule 21F-4(b)(6) addressed circumstances where we already 
know some information about a matter from other sources at the time 
that we receive a whistleblower submission related to the same matter. 
In that case, the proposed rule provided that we would consider the 
whistleblower to be an ``original source'' of any information he or she 
provided that was derived from the whistleblower's independent 
knowledge or independent analysis, and that materially added to the 
information already in our possession. As our Proposing Release 
explained, this standard was modeled after the definition of ``original 
source'' that Congress included in the False Claims Act through recent 
amendments.\190\
---------------------------------------------------------------------------

    \190\ 31 U.S.C. 3730(e)(4)(B), Public Law 111-148 Sec.  
10104(h)(2), 124 Stat. 901 (Mar. 23. 2010).
---------------------------------------------------------------------------

b. Comments Received
    One commenter suggested that we clarify how we plan to address the 
situation where one whistleblower provides original information that 
leads to successful enforcement of an action, and a second 
whistleblower provides additional information that ``materially aids'' 
the enforcement of the same case.\191\
---------------------------------------------------------------------------

    \191\ See letter from SIFMA.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are adopting Rule 21F-4(b)(6) as 
proposed. Accordingly, a whistleblower will be deemed to be an 
``original of source'' of information he or she provides that 
materially adds to the Commission's base of knowledge about a matter. 
In cases where a second whistleblower voluntarily provides information 
that materially adds to what we already know about the matter, and 
assuming that all of the other requirements of our rules are satisfied, 
we will assess whether the additional information provided by the 
second whistleblower also led to successful enforcement of our action 
pursuant to the standards described in Rule 21F-4(c). If so, and if, as 
a result, we determine that the second whistleblower is also entitled 
to an award, then we will determine an award allocation among 
whistleblowers pursuant to the criteria set forth in Rule 21F-6.
8. 21F-4(b)(7): Original Source: Lookback
a. Proposed Rule
    Proposed Rule 21F-4(b)(7) provided that, if a whistleblower 
reported the original information to other authorities or people 
identified in Proposed Rules 21F-4(b)(4)(iv) and (v) (personnel 
involved in compliance or similar functions, or who are informed about 
possible violations with the expectation that they will take steps to 
address them), and the whistleblower within 90 days submitted the same 
information to the Commission, we would consider that the whistleblower 
provided the information as of the date of his or her original 
disclosure to one of these other authorities or people. In proposing 
this rule in this manner, we were seeking to protect the ability of the 
whistleblower to pursue internal or other channels to quickly address 
the violation while ensuring that the Commission receives this critical 
information in a timely fashion.
b. Comments Received
    The Commission received numerous comments suggesting that we extend 
the lookback period or eliminate it altogether. Commenters suggested 
that 90 days was not sufficient time for an internal compliance or 
review program to conduct a sufficiently thorough investigation and 
suggested extending the period to 120 days, 180 days, or a reasonable 
period of time.\192\ Others, also calling for a longer lookback period 
or none at all, suggested that the time limit would burden 
whistleblowers seeking to complete their own investigations and 
complicate the process.\193\ Some commenters suggested that the 
Commission should coordinate with other authorities to determine timing 
rather than burden a whistleblower with proving the timing.\194\
---------------------------------------------------------------------------

    \192\ See, e.g., letters from Association of Criminal Defense 
Lawyers, AT&T, Business Roundable Institute for Corporate Ethics 
(``Business Roundtable''), NSCP.
    \193\ See, e.g., letters from Georg Merkl, NWC.
    \194\ See e.g. letter from Storch, Amini & Munves PC.
---------------------------------------------------------------------------

c. Final Rule
    In response to the almost uniform view of commenters suggesting a 
longer lookback period, we are modifying the proposed rule to extend 
the lookback period to 120 days. Thus, a whistleblower who first 
reports to an entity's internal whistleblower, legal, or compliance 
procedures for reporting allegations of possible violations of law and 
within 120 days reports to the Commission could be an eligible 
whistleblower whose submission is measured as if it had been made at 
the earlier internal reporting date. This means that even if, in the 
interim, another whistleblower has made a submission that caused the 
staff to begin an investigation into the same matter, the whistleblower 
who had first reported internally will be considered the first 
whistleblower who came to the Commission, assuming that his information 
was sufficiently specific and credible to have caused the staff to 
begin an investigation.\195\
---------------------------------------------------------------------------

    \195\ However, in that instance, the other whistleblower would 
still be considered for an award if his information significantly 
contributed to the success of our enforcement action. See Rule 21F-
4(c)(2).
---------------------------------------------------------------------------

    We are balancing priorities with the length and existence of this 
lookback

[[Page 34323]]

period, each with the ultimate objective of identifying and remedying 
violations of the Federal securities laws quickly. On the one hand, 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. For this reason, we are not requiring 
that a whistleblower utilize an available internal compliance program 
prior to submission to the Commission, and we are not providing for a 
lookback period as long as requested by some commenters. Because of our 
strong law enforcement interest in receiving high quality information 
about misconduct quickly we have chosen a lookback period shorter than 
the 180 days or more that some commenters requested.
    On the other hand, 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 possible 
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. We believe that the balance struck in the final 
rule will promote the continued development and maintenance of robust 
compliance programs. As we noted in our proposing release, we are not 
seeking to undermine effective company processes for receiving reports 
on possible violations including those that may be outside of our 
enforcement interest, but are nonetheless important for companies to 
address.
    The inclusion of this provision is designed for the benefit of 
whistleblowers by providing a reasonable period of time to make their 
decisions. As discussed elsewhere in this release, we are not requiring 
potential whistleblowers to use internal compliance and reporting 
procedures 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 do not. Thus, there may well be instances where 
internal disclosures could be inconsistent with effective investigation 
or the protection of whistleblowers. Ultimately, we believe that 
whistleblowers are in the best position to assess whether reporting 
potential securities violations through their companies' internal 
compliance and reporting systems would be effective.
    Nevertheless, as we noted in our proposing release, 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.\196\ 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.\197\
---------------------------------------------------------------------------

    \196\ Exchange Act Release No. 44969 (October 23, 2001).
    \197\ See Rule 21F-6. In addition, as discussed below, in order 
to encourage whistleblowers to utilize internal reporting processes, 
we expect to give credit in the calculation of award amounts to 
whistleblowers who utilize established internal procedures for the 
receipt and consideration of complaints about misconduct. And, in 
determining whether to give a company the opportunity to investigate 
and report back, we may consider a number of factors, including, but 
not limited to, information we have concerning the nature of the 
alleged conduct, the level at which the conduct allegedly occurred, 
and the company's existing culture related to corporate governance. 
We may also consider information we have about the company's 
internal compliance programs, including what role, if any, internal 
compliance had in bringing the information to management's or the 
Commission's attention.
---------------------------------------------------------------------------

9. Rule 21F-4(c)--Information That Leads to Successful Enforcement
a. Proposed Rule
    As proposed, Rule 21-4(c) explained when we would consider original 
information to have led to successful enforcement. The Proposed Rule 
distinguished between information regarding conduct not under 
investigation or examination and information regarding conduct already 
under investigation or examination.
    For information regarding conduct not under investigation or 
examination, the Proposed Rule established a two-part test for 
determining whether the information led to successful enforcement. 
First, the information must have caused the staff to commence an 
investigation or examination, reopen an investigation that had been 
closed, or to inquire into new and different conduct as part of an 
existing examination or investigation. Second, the information must 
have ``significantly contributed'' to the success of an enforcement 
action filed by the Commission.
    For information regarding conduct under investigation or 
examination, the Proposed Rule provided a significantly higher 
standard. To establish that information led to successful enforcement, 
a whistleblower would need to demonstrate that the information: (1) 
would not have otherwise been obtained; and (2) was essential to the 
success of the action.
b. Comments Received
    Although a few commenters approved of the standards in the Proposed 
Rule,\198\ most stated that the standards were too high, ambiguous, or 
both.\199\ Several commenters criticized the requirement that 
information not only cause the staff to open an investigation or 
examination but also that it ``significantly contributed'' to the 
success of the action, noting that the ``significantly contributed'' 
element is not contained in the statute and is too high a 
standard.\200\ Commenters also expressed concern that the standard 
would create uncertainty over when awards would be granted, which in 
turn would make potential whistleblowers less likely to come forward 
with information.\201\ One commenter suggested that we should examine 
whether the whistleblower has provided ``enough information to get the 
Commission to open an investigation.'' \202\
    Commenters also criticized the proposed standard applicable when 
there is already an examination or investigation underway, arguing that 
it would be almost impossible for whistleblowers to show that 
information

[[Page 34324]]

would not have otherwise been obtained and was essential to the success 
of the action.\203\ One commenter expressed concern that the standards 
could result in anomalous outcomes, providing an example where one 
whistleblower provides a bare-boned tip that causes the staff to open 
an investigation (but does not ``significantly contribute'' to the 
success of the action), and another whistleblower provides a subsequent 
tip that is a complete roadmap of the case after the investigation has 
been opened (but the information is not ``essential'' to the success of 
the action), yet neither would receive an award.\204\
---------------------------------------------------------------------------

    \198\ See Chris Barnard; American Accounting Association, 
Auditing Standards Committee.
    \199\ See, e.g., TAF; VOICES.
    \200\ See letters from American Association for Justice; 
Grohovsky Group; Cornell Securities Law Clinic; TAF; VOICES; NWC.
    \201\ Letters from TAF; VOICES.
    \202\ See letter from Grohovsky Group.
    \203\ Letter from VOICES (arguing that, particularly given our 
funding issues, we should not condition awards on the theoretical 
possibility that the staff could uncover the evidence).
    \204\ Letter from Grohovsky Group.
---------------------------------------------------------------------------

    As noted, we requested comment on whether our rules should require 
whistleblowers to report violations of the securities laws through 
their internal compliance and reporting systems before submitting the 
information to us. Comments on this issue were sharply divided. Many 
commenters strongly supported such a requirement. In particular, 
commenters argued that we should require internal reporting because 
doing so will:
    1. Allow companies to take appropriate actions to remedy improper 
conduct at an early stage; \205\
---------------------------------------------------------------------------

    \205\ See letters from Lum; Chamber of Commerce Group.
---------------------------------------------------------------------------

    2. Allow companies to self-report; \206\
---------------------------------------------------------------------------

    \206\ See letter from Baker, Donaldson, Bearman, Caldewell & 
Berkowitz (``Baker Donaldson'').
---------------------------------------------------------------------------

    3. Avoid undermining internal compliance programs and preserve 
systems companies have installed designed to deter, indentify, and 
correct violations; \207\
---------------------------------------------------------------------------

    \207\ See letters from Baker Donaldson; Chamber of Commerce 
Group; Foster Wheeler; Apache Group; Alcoa Group; Allstate Group.
---------------------------------------------------------------------------

    4. Allow the whistleblower program to supplement, rather than 
supersede the internal control requirements under the Sarbanes-Oxley 
Act of 2002; \208\
---------------------------------------------------------------------------

    \208\ See letters from Arent Fox; Alcoa Group.
---------------------------------------------------------------------------

    5. Allow the Commission to preserve its scarce resources by relying 
upon corporate internal compliance programs; \209\
---------------------------------------------------------------------------

    \209\ See letter from ALG.
---------------------------------------------------------------------------

    6. Promote a working relationship between the Commission and 
companies; \210\
---------------------------------------------------------------------------

    \210\ Id.
---------------------------------------------------------------------------

    7. Allow compliance personnel to address conduct that does not yet 
rise to the level of a violation or is not a violation (based on a 
misunderstanding of fact or law); \211\
---------------------------------------------------------------------------

    \211\ See letters from Foster Wheeler; Apache Group.
---------------------------------------------------------------------------

    8. Increase the quality of tips the Commission receives; \212\ and
---------------------------------------------------------------------------

    \212\ See letter from Apache Group.
---------------------------------------------------------------------------

    9. Avoid internal investigations being compromised by unwillingness 
on the part of whistleblowers to participate.\213\
---------------------------------------------------------------------------

    \213\ See letter from Apache Group.
---------------------------------------------------------------------------

    Many other commenters strongly opposed a requirement that 
whistleblower report internally before reporting to the Commission. 
Several commenters argued that doing so would:
    1. Prohibit whistleblowers from reporting fraud directly and 
immediately to the Commission; \214\
---------------------------------------------------------------------------

    \214\ See letter from NWC.
---------------------------------------------------------------------------

    2. Be inconsistent with Congressional intent; \215\
---------------------------------------------------------------------------

    \215\ See letters from TAF; POGO. See also Letter from Senator 
Charles Grassley (``requiring whistleblowers to first go through 
internal compliance programs would be at odds with the law Congress 
wrote'').
---------------------------------------------------------------------------

    3. Create unnecessary and improper hurdles for whistleblowers; 
\216\
---------------------------------------------------------------------------

    \216\ See letter from TAF.
---------------------------------------------------------------------------

    4. Place whistleblowers at risk of retaliation; \217\
---------------------------------------------------------------------------

    \217\ See letters from TAF; Grohovsky Group; POGO.
---------------------------------------------------------------------------

    5. Result in whistleblowers deciding not to report misconduct; 
\218\
---------------------------------------------------------------------------

    \218\ See letters from Grohovsky Group; POGO.
---------------------------------------------------------------------------

    6. Eliminate incentives for companies to improve their internal 
compliance programs.\219\
---------------------------------------------------------------------------

    \219\ See letter from POGO.
---------------------------------------------------------------------------

    7. Contravene an employee's right to disclose information 
anonymously and directly to the Commission;\220\ and
---------------------------------------------------------------------------

    \220\ See letters from NWC and Daniel J. Hurson.
---------------------------------------------------------------------------

    8. Be inconsistent with the DOJ and IRS whistleblower 
programs.\221\
---------------------------------------------------------------------------

    \221\ See letters from TAF and NWC.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we have significantly modified Rule 
21F-4(c). First, we are persuaded by those commenters who stated that 
the standards in the Proposed Rule were too high. As such, we have 
adopted standards that should be easier to satisfy--both for 
information regarding conduct not under investigation or examination 
and information regarding conduct already under investigation or 
examination--in the Final Rule.
    Moreover, as further described below, internal compliance programs 
are not substitutes for rigorous law enforcement. However, we believe 
that internal compliance programs play an important role. While we are 
not requiring whistleblowers to report misconduct internally before 
reporting to us, we agree that the incentives to do so should be 
strengthened. Accordingly, the Final Rule includes a provision for a 
new standard applicable to a whistleblower who reports information 
internally. The details of the final rule are discussed below.
    i. Rule 21F-4(c)(1): Standard for information concerning conduct 
not under investigation or examination.
    We have decided to lower the standard applicable to information 
that concerns conduct not under investigation or examination. As noted 
above, the Proposed Rule required that the information must have 
``significantly contributed'' to the success of the action. In the 
Final Rule, we have deleted ``significantly contributed'' from the 
standard. Under the Final Rule, information will be considered to have 
led to successful enforcement when it is sufficiently specific, 
credible, and timely to cause the staff to commence an examination, 
open an investigation, reopen an investigation that the Commission had 
closed, or to inquire concerning different conduct as part of a current 
examination or investigation, and the Commission brings a successful 
judicial or administrative action based in whole or in part on the 
conduct identified in the original information.
    We do not anticipate a rigid, mechanical application of this 
standard. As a general matter, in assessing whether information `led 
to' a successful enforcement action, we will examine the relationship 
between the information in a submission and the allegations in the 
Commission's complaint filed in the civil action or order filed in the 
administrative proceeding. Our inquiry will focus on whether the 
submission identifies persons, entities, places, times and/or conduct 
that correspond to those alleged by the Commission in the judicial or 
administrative action. As part of this analysis, we may consider 
whether, and the extent to which, the information included: (1) 
Allegations that formed the basis for any of the Commission's claims in 
the judicial or administrative action; (2) provisions of the securities 
laws that the Commission alleged as having been violated in the 
judicial or administrative action; (3) culpable persons or entities (as 
well as offices, divisions, subsidiaries or other subparts of entities) 
that the Commission named as defendants, respondents or uncharged 
wrongdoers in the judicial or administrative action; or (4) investors 
or a defined group of investors that the Commission named as victims or 
injured parties in the judicial or administrative action.
    The Final Rule also states that the information submitted by the 
whistleblower must be sufficiently ``specific, credible and timely'' to 
cause

[[Page 34325]]

the Commission to commence an investigation or examination. This new 
language is intended to describe generally the type of information that 
would cause our staff to open an investigation or examination. While we 
believe it is appropriate to adopt a lower standard in the Final Rule, 
due to our limited resources and the high volume of tips that we 
receive each year, high-quality tips--ones that are specific, credible 
and timely--are most likely to lead to a successful enforcement action.
    ii. Rule 21F-4(c)(2): Standard for information concerning conduct 
already under investigation or examination.
    We have also decided to lower the standard applicable for 
information that concerns conduct already under investigation or 
examination. We agree with the commenters who expressed concern that 
the standard in the Proposed Rule--that the information would not have 
otherwise been obtained and was essential to the success of the 
action--in practice might be too difficult to satisfy. As a result, for 
information concerning conduct already under investigation or 
examination, we will find information to have led to successful 
enforcement when the information ``significantly contributed'' to the 
success of our action.
    While we continue to believe that the primary focus of the program 
is to encourage the submission of information regarding conduct not 
already known to us, we recognize that in some cases information 
voluntarily provided by a whistleblower can play a vital role in 
advancing an existing investigation. Thus, a whistleblower will be 
eligible for an award in a matter already under investigation if his or 
her information ``significantly contributes'' to our success. In 
applying this standard, among other things, we will look at factors 
such as whether the information allowed us to bring: (1) Our successful 
action in significantly less time or with significantly fewer 
resources; (2) additional successful claims; or (3) successful claims 
against additional individuals or entities.
    At the same time, we do not want to reward a whistleblower who has 
obstructed an ongoing investigation in an effort to obtain an award. In 
this regard, absent extraordinary circumstances, we will not consider 
information to have ``significantly contributed'' to the success of our 
action if: (i) We or some other law enforcement agency has issued a 
subpoena or other document request, inquiry or demand to an entity or 
an individual other than the whistleblower; (ii) there is evidence that 
the whistleblower was aware of the investigative request, inquiry, or 
demand; and (iii) the whistleblower withheld or delayed providing 
responsive documents prior to making the related submission to the 
Commission. This approach is consistent with one of the principal goals 
of the program: To incentivize whistleblowers to come forward early 
with information of possible violations of the securities laws rather 
than wait until they become aware of an investigation by the Commission 
or other agency.\222\ Further, it would not be good policy for a person 
to be rewarded for ``significantly contributing'' to the success of an 
action when he has knowingly obstructed the investigation of the 
misconduct.
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    \222\ See S. Rep. No. 111-176 at 110 (2010) (``The Whistleblower 
Program aims to motivate those with inside knowledge to come forward 
and assist the Government to identify and prosecute persons who have 
violated securities laws * * *.'').
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    iii. Rule 21F-4(c)(3): Additional incentives to encourage reporting 
through internal compliance programs.
    Paragraph (3) of Rule 21F-4(c) is a new provision that has been 
added, in response to comments, to create a significant financial 
incentive for whistleblowers to report possible violations to internal 
compliance programs before, or at the same time, they report to us. The 
final rule provides that if: (1) A whistleblower reports original 
information through his or her employer's internal whistleblower, legal 
or compliance procedures before or at the same time he or she reports 
them to the Commission; (2) the employer provides the Commission with 
the whistleblower's information or with the results of an investigation 
initiated in response to the whistleblower's information; and (3) the 
information provided by the employer to the Commission ``led to'' 
successful enforcement under the criteria of Rule 21F-4(c)(1) or (2) 
discussed above, then the whistleblower will receive full credit for 
the information provided by the employer as if the whistleblower had 
provided the information to us.\223\ Thus, when the employer provided 
information ``led to'' a successful enforcement action, the 
whistleblower will be eligible for an award, even if the information 
the whistleblower originally provided to the employer would not have 
satisfied the ``led to'' requirements.
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    \223\ Employees who report internally in this manner will have 
anti-retaliation employment protection to the extent provided for by 
Section 21F(h)(1)(A)(iii) of the Exchange Act, which incorporates 
the broad anti-retaliation protections of Sarbanes-Oxley Section 
806, see 18 U.S.C. 1514A(b)(2).
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    To qualify for an award under this new provision, the rule requires 
that a whistleblower must provide information ``through an entity's 
internal whistleblower, legal or compliance procedures for reporting 
allegations of possible violations of law.'' A report to a supervisor 
will qualify under this standard if the entity's internal compliance 
procedures require or permit reporting misconduct in the first instance 
to supervisors. Furthermore, if an entity does not have established 
internal procedures for reporting violations of law, we will consider 
an employee who reports a possible violation to the entity's legal 
counsel, senior management, or a director or trustee to have provided 
the information through the appropriate ``internal whistleblower, legal 
or compliance procedures.'' \224\
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    \224\ To qualify for consideration under Rule 21F-4(c)(3), a 
whistleblower must establish that he or she provided original 
information through the appropriate ``internal whistleblower, legal 
or compliance procedures.'' Accordingly, prospective whistleblowers 
will be better able to support their claims under this provision if 
they generate, obtain and retain contemporaneous documentation 
(e.g., e-mails or other written records) demonstrating their 
compliance with the requirements of the Rule, including documents 
evidencing: (i) the substance of the information; (ii) the means by 
which the information was provided; (iii) the recipients of the 
information; and (iv) the date on which the information was 
provided.
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    Rule 21F-4(c)(3) incentivizes whistleblowers to report internally 
in appropriate circumstances by providing them a meaningful opportunity 
to increase their probability of receiving an award. In effect, 
reporting internally provides a second potential path to an award. We 
anticipate that not only individuals who were predisposed to report 
internally prior to the enactment of the whistleblower award program, 
but also some who would not have been inclined to report internally, 
will respond to Rule 21F-4(c)(3)'s financial incentive by utilizing 
internal reporting procedures. Put differently, the rule's financial 
incentives should both mitigate any diversion from internal reporting 
of individuals who would be predisposed to report internally in the 
absence of the whistleblower program, and incentivize new individuals 
who otherwise might never have reported internally to enter the pool of 
potential internal whistleblowers. As a result, the provision should 
increase the likelihood that individuals will report misconduct to 
effective internal reporting programs, allowing such programs to 
continue to play an important role in facilitating compliance with the 
securities laws.
    Although many commenters argued that we should require 
whistleblowers to report possible violations internally either before 
or contemporaneously with reporting to us, we are not

[[Page 34326]]

persuaded that such a requirement would achieve better overall 
enforcement of the Federal securities laws than the approach we are 
adopting for several reasons. First, we believe that there are a 
significant number of whistleblowers who would respond to the financial 
incentive offered by the whistleblower program by reporting only to the 
Commission, but who would not come forward either to the Commission or 
to the entity if the financial incentive were coupled with a mandatory 
internal reporting requirement.\225\ In those cases, the Commission 
would not receive critical information about possible securities law 
violations, and companies and investors would suffer harm as ongoing 
violations remained undetected and unremedied.
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    \225\ Specifically, the fear of retaliation and other forms of 
harassment, as well as other social and psychological factors, can 
have a chilling effect on certain whistleblowers who, absent a 
mandatory internal reporting requirement, would respond to the 
financial incentive offered by the whistleblower program by 
providing the Commission with information about possible securities 
law violations. See discussion in Part IV(A)(7) of the Economic 
Analysis. A number of commenters who routinely work with 
whistleblowers supported this assessment. See, e.g., letters from 
Grohvosky (explaining that if potential whistleblowers were required 
to report internally, many would remain silent); TAF (same).
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    Second, our approach should encourage companies to continue to 
strengthen their internal compliance programs in an effort to promote 
internal reporting. Potential whistleblowers are more likely to respond 
to Rule 21F-4(c)(3)'s financial incentive by reporting internally when 
they believe that the company or entity has a good internal compliance 
program--i.e., a compliance program that will take their information 
seriously and not retaliate.\226\ We anticipate that companies will 
recognize this, take steps to promote a corporate environment where 
employees understand that internal reporting can have a constructive 
result, and that the net effect of this will be enhanced corporate 
compliance with the Federal securities laws.
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    \226\ See generally Richard E. Moberly, Sarbanes-Oxley's 
Structural Model To Encourage Corporate Whistleblowers, 2006 BYU L. 
REV. 1107, 1144 (2006).
---------------------------------------------------------------------------

    Third, while internal compliance programs are valuable, they are 
not substitutes for strong law enforcement. In some cases, law 
enforcement interests will be better served if we know of potential 
fraud before the entities or individuals involved learn of our 
investigation. This is particularly true when there is a risk that an 
entity or individual may try to hinder or impede our investigation by, 
for example, destroying documents or tampering with witnesses.\227\ 
Similarly, there are circumstances where a whistleblower may have 
legitimate reasons for not wanting to report the information 
internally, for example, legitimate concerns about misconduct by the 
company's management or within the internal compliance program, or a 
reasonable basis to fear retaliation or personal harm.
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    \227\ Similarly, we note that a requirement for mandatory 
internal reporting before reporting to the Commission would result 
in undesirable outcomes in the case of entities' with ineffective 
internal compliance processes. In these cases, mandatory internal 
pre-reporting would lead to unnecessary delays before the violation 
can be addressed by the Commission, resulting in potentially 
increased injuries to the company and investors.
---------------------------------------------------------------------------

    In addition, we do not believe that a general requirement on 
whistleblowers to report possible violations through internal 
compliance procedures would be consistent with the language of, or 
legislative intent underlying, Section 21F. As evidenced by the text of 
Section 21F, the broad objective of the whistleblower program is to 
enhance the Commission's law enforcement operations by increasing the 
financial incentives for reporting and lowering the costs and barriers 
to potential whistleblowers, so that they are more inclined to provide 
the Commission with timely, useful information that the Commission 
might not otherwise have received.\228\ However, as discussed above, a 
general requirement that employees report internally as a condition of 
participating in the whistleblower program would impose a barrier that 
in some cases would dissuade potential whistleblowers from providing 
information to the Commission, contrary to the purpose of the 
whistleblower provision.\229\ Moreover, a mandatory internal reporting 
requirement would deviate from the operation of other established 
Federal whistleblower award programs, and there is no indication in the 
text or legislative history of Section 21F that Congress intended that 
result.\230\
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    \228\ The statute incentivizes whistleblowers to report possible 
securities law violations to the Commission by offering them 
financial awards, reducing the risks from employment retaliation, 
and lowering the barriers through user-friendly procedures and 
appellate redress. See Section 21F(b)-(c) of the Exchange Act (10-
30% awards); id. 21F(d) (whistleblower anonymity); id. 21F(e) (no 
contractual obligations can be imposed on whistleblowers unless 
provided for in a Commission rule or regulation); id. 21(f) (right 
of appeal); id. 21F(h) (anti-retaliation protection and heightened 
confidentiality requirements for whistleblower identifying 
information). See also Section 922(d) of Dodd-Frank Act (mandating a 
study of the ``whistleblower protections'' established in Section 
21F of the Exchange Act).
    \229\ Similarly, an internal reporting requirement would appear 
inconsistent with the provisions of Section 21F that are designed to 
protect the identity of a whistleblower. See Section 21F(d)(2) & 
(h)(2). Simply put, even where an entity may have implemented 
generally effective procedures for anonymous reporting, there will 
be situations where a whistleblower's tip might, by the nature of 
the information it discloses, reveal the identity of the 
whistleblower--e.g., situations where only a few people would have 
assess to the information. The financial incentives approach that we 
are adopting allows the whistleblower to access whether an internal 
report might disclose his identity and, if so, whether he wishes to 
report internally notwithstanding this possibility.
    \230\ We also considered suggestions by some commenters that we 
should require internal reporting by employees of issuers that are 
subject to Section 301 of the Sarbanes-Oxley Act of 2002 (``SOX'') 
in order to harmonize Section 21F with the requirement of Section 
301 that listed companies have audit committee procedures for the 
receipt, retention, and treatment of complaints regarding 
accounting, internal accounting control, and auditing matters, 
including procedures for the submission of information anonymously. 
See, e.g. letters from Business Roundtable; ABA; U.S. Chamber of 
Commerce Group; Alcoa Group. In Section 301 of SOX, Congress 
mandated that listed companies establish structural mechanisms to 
facilitate internal whistleblowing by employees. In Section 21F, 
however, Congress chose a wholly different model--one that provides 
financial incentives for employees and others to report violations 
directly to the Commission. See Richard E. Moberly, Sarbanes-Oxley's 
Structural Model To Encourage Corporate Whistleblowers, 2006 BYU L. 
REV. 1107, 1108 n.5 (2006); Geoffrey Christopher Rapp, Beyond 
Protection: Invigorating Incentives for Sarbanes-Oxley Corporate and 
Securities Fraud Whistleblowers, 87 B.U.L.Rev. 91 (2007). We do not 
think it appropriate to limit the path opened by Section 21F by a 
Commission-imposed requirement that employees of listed companies 
also utilize internal audit committee or other complaint procedures. 
Further, even if a company has anonymous complaint procedures 
consistent with Section 301 of SOX, in some cases an anonymous 
whistleblower's identity can be gleaned from the facts and 
circumstances surrounding the whistleblower's complaint. In those 
situations, requiring the whistleblower to report internally would 
be in tension with the mandate of Section 21F that we protect 
information that could reasonably be expected to reveal the identity 
of a whistleblower. See Section 21F(h)(2) of the Exchange Act. 
Finally, as discussed above, we believe that our approach will 
incentivize individuals who were pre-disposed to report internally 
to continue to do so, and thus will significantly mitigate the 
concern of commenters that our rules will undermine internal 
reporting processes established pursuant to Section 301.
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    At the same time, we also do not agree with the comment that no 
provisions should be made in our rule to encourage internal reporting 
because whistleblowers would do so anyway.\231\ Although some evidence 
suggests that many whistleblowers will continue to

[[Page 34327]]

report misconduct internally,\232\ we understand that the financial 
incentives established by Section 21F could have the potential to 
divert other whistleblowers away from reporting internally. If this 
diversion were significant, it might impair the usefulness of internal 
compliance programs, which can play an important role in achieving 
compliance with the securities laws. Accordingly, we believe that it is 
appropriate for us to provide significant financial incentives as part 
of the whistleblower program to encourage employees and other insiders 
to report violations internally, while still leaving the ultimate 
decision whether to report internally to the whistleblower.
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    \231\ See, e.g., letter from NWC (``NWC strongly urges that the 
Commission rules be revised and * * * treat employees equally 
whether they choose to make their disclosures internally, 
externally, or both.''). But cf. Chamber of Commerce Group (``In the 
absence of an affirmative restriction on external reporting when 
effective internal compliance channels are available, or provision 
of a significant incentive for using those internal channels, 
employees will face an irresistible temptation to go to the SEC with 
their report.'') (emphasis added).
    \232\ See letter from NWC. This comment included a study 
indicating that roughly 90% of individuals who eventually filed qui 
tam suits under the False Claims Act also reported the misconduct 
internally, without any incentives for internal reporting. It is not 
clear that data about whistleblower behavior under the False Claims 
Act necessarily will be an accurate predictor of behavior under our 
program. The barriers to participation as a False Claims Act 
whistleblower are appreciably higher than in our program: for 
example, to be eligible for an award under the False Claims Act, a 
qui tam relator must file a Federal court complaint alleging fraud 
with specificity as required by Rule 9(b) of the Federal Rules of 
Civil Procedure, whereas under our program, a whistleblower only 
needs to complete a Form TCR, sworn under penalty of perjury.
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10. Rule 21F-4(d)--Action
    Proposed Rule 21F-4(d) defined the term ``action'' to mean a single 
captioned judicial or administrative proceeding. We are revising the 
proposed rule to permit consideration of multiple cases that arise out 
of a common nucleus of operative facts as a single ``action.''
a. Proposed Rule
    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 collected sanctions on which awards are based,\233\ 
proposed rule 21F-4(d) defined ``action'' to mean a single captioned 
civil or administrative proceeding. Under the proposed rule, ``action'' 
included all defendants or respondents and all claims 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.
---------------------------------------------------------------------------

    \233\ See Proposed Rule 21F-5.
---------------------------------------------------------------------------

    Also, the proposed rule meant 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.
b. Comments Received
    Commenters offered competing views on the proposed interpretation 
of ``action.'' A number of commenters supported our proposed 
definition.\234\ Several commenters disagreed with the proposal, urging 
that the Commission should aggregate multiple Commission actions 
arising out of a whistleblower's submission for purposes of satisfying 
the $1,000,000 threshold \235\ because to do otherwise was to put form 
over substance and not fully reward whistleblowers for the information 
they provided that led to successful actions.\236\
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    \234\ See letters from Chris Barnard, Auditing Standards 
Committee, and Institute of Internal Auditors.
    \235\ See, letters from VOICES, NWC, Stuart D. Meissner, LLC, 
Georg Merkl, and Wanda Bond.
    \236\ See letter from the NWC.
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    Two other commenters argued that our definition of ``action'' 
should be narrowed so that, in a case involving multiple counts, only 
the counts resulting from the whistleblower's information are 
considered.\237\ These commenters were concerned that, without this 
limitation, the rules would encourage whistleblowers to report even 
minor violations in the hope that they will be grouped with more 
serious violations in a single action with the result that all of the 
sanctions in the action together meet the covered action threshold.
---------------------------------------------------------------------------

    \237\ See letters from the NSCP and SIFMA.
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c. Final Rule
    After reviewing the comments, we are adopting the rule with 
substantial modifications. Notwithstanding the use of the singular term 
``action'' in Section 21F, we agree with the commenters who urged that 
Congress did not intend for a meritorious whistleblower to be denied 
consideration for an award simply because we chose to bring separate 
proceedings against respondents or defendants involved in the same or 
closely related conduct.\238\
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    \238\ As noted above, two commenters argued that we should 
interpret ``action'' narrowly such that we would only pay an award 
to a whistleblower for monetary sanctions related to specific counts 
in an action that were based upon the whistleblower's information. 
We decline to do so. First, we do not believe that such a narrow 
interpretation is consistent with the purpose of the whistleblower 
program, which is to encourage whistleblowers to provide the 
Commission with information that leads to successful enforcement 
actions. The proposed narrow interpretation of action would reduce 
incentives for whistleblowers to provide the Commission with 
information because (i) it would create uncertainty regarding how 
monetary sanctions may be assigned to specific counts and (ii) it 
would not reward whistleblowers who provide the Commission with 
information regarding lesser misconduct (although misconduct 
sufficient to cause the Commission to open an investigation) but 
which led the Commission to uncover much more significant 
misconduct. Second, we do not believe that such a narrow 
interpretation of action is practical. In contested actions, courts 
often do not assign monetary sanctions against a single defendant on 
a per count basis, and neither do Commission settlements. As such, 
we would have no reasonable basis to assign specific amounts to 
various counts in an action.
---------------------------------------------------------------------------

    Accordingly, as adopted, Rule 21F-4(d) defines the term ``action'' 
generally to mean a single captioned judicial or administrative 
proceeding brought by the Commission. However, the rule also identifies 
two exceptions to this general definition. First, an ``action'' will 
constitute two or more Commission proceedings arising from the same 
nucleus of operative facts for purposes of making an award under Rule 
21F-10. Second, for purposes making payments under Rule 21F-14 on a 
Commission action for which we have already made an award, we will 
treat as part of that same action any subsequent Commission proceeding 
that, individually, results in a monetary sanction of $1,000,000 or 
less, and that arises out of the same nucleus of operative facts.
    The same-nucleus-of-operative-facts test is a well-established 
legal standard that is satisfied where two proceedings, although 
brought separately, share such a close factual basis that the 
proceedings might logically have been brought together in one 
proceeding.\239\ In exercising our discretion and deciding whether two 
or more proceedings arise from the same nucleus of operative

[[Page 34328]]

facts, we intend to apply a flexible approach and will consider a 
number of factors, including whether the separate proceedings involve 
the same or similar: (1) Parties (whether named as defendants/
respondents or simply named within the complaint or order); (2) factual 
allegations; (3) alleged violations of the Federal securities laws; or 
(4) transactions or occurrences.\240\
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    \239\ See, e.g., Harper v. AutoAlliance Intern., Inc., 392 F.3d 
195, 209 (6th Cir. 2004) (``Claims form part of the same case or 
controversy [for purposes of supplemental jurisdiction] when they 
`derive from a common nucleus of operative facts.''') (quoting 
Ahearn v. Charter Township of Bloomfield, 100 F.3d 451, 454-55 (6th 
Cir. 1996)). To determine whether two or more proceedings involve 
the same nucleus of operative facts, courts look at ``factors such 
as `whether the facts are related in time, space, origin or 
motivation,' `whether they form a convenient trial unit,' and 
whether treating them as a unit `conforms to the parties' 
expectations.''' In re Iannochino, 242 F.3d 36, 46 (1st Cir. 2001) 
(quoting Restatement (Second) of Judgments Sec.  24 (1982)) 
(internal quotation marks omitted). See also Airframe Systems, Inc. 
v. Raytheon Co., 601 F.3d 9, 15 (1st Cir. 2010). Put another way, 
``as long as the new complaint grows out of the same transaction or 
series of connected transactions as the old complaint, the causes of 
action are considered to be identical.'' Kale v. Combined Ins. Co., 
924 F.2d 1161, 1166 (1st Cir. 1991) (internal quotation marks and 
citations omitted).
    \240\ An administrative or judicial proceeding brought by the 
Commission will be treated as part of only one covered action.
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    Paragraph (d)(1) allows us to treat together as a covered action 
for purposes of making an award under Rule 21F-10, two or more 
administrative or judicial proceedings brought by the Commission if 
those proceedings arise from the same nucleus of operative facts. So, 
for example, if we bring multiple proceedings during the course of an 
investigation, and these proceedings involve the same nucleus of 
operative facts but none yields a monetary sanction in excess of 
$1,000,000, we may nonetheless issue a Notice of Covered Action and 
treat these proceedings as one covered action for purposes of making an 
award under Rule 21F-10. Thus, if a qualified whistleblower provided us 
with original information that led to the successful enforcement of any 
one of the proceedings, we will make an award to that whistleblower for 
10 to 30 percent of the total monetary sanctions collected in those 
proceedings.
    Similarly, we will treat together a proceeding that yielded a 
monetary sanction of $1,000,000 or less with a Commission proceeding 
that alone would qualify as a covered action if the two proceedings 
involve the same nucleus of operative facts. Here again, we believe 
this is consistent with Congress's intent that qualified whistleblowers 
who provide us with original information that leads to enforcement 
proceedings yielding monetary sanctions in excess of $1,000,000 should 
receive an award payout that fully reflects the monetary sanctions 
collected.
    Paragraph (d)(1) also authorizes us to treat as a covered action 
under Rule 21F-10 two or more Commission proceedings that otherwise 
might individually qualify as covered actions where these proceedings 
involve the same nucleus of operative facts. We believe that treating 
these proceedings together under the Rule 21F-10 procedures as one 
covered action, rather than processing them as separate covered 
actions, will help make the awards procedures more efficient and user-
friendly, thereby further encouraging whistleblowers to come forward.
    Finally, paragraph (d)(2) provides that, for purposes of 
determining the payment on an award pursuant to Rule 21F-14, we will 
deem as part of the Commission action upon which the award was based 
any subsequent Commission proceeding that, individually, results in a 
monetary sanction of $1,000,000 or less, and that arises out of the 
same nucleus of operative facts.\241\ For example, if we make a 
whistleblower award for a covered action brought against an entity, but 
thereafter bring a separate proceeding against the officer who was 
responsible for the entity's conduct in which we do not recover in 
excess of $1,000,000, we may in our discretion determine to treat the 
second proceeding as part of the previous covered action and provide a 
payment based on the total of the two proceedings.
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    \241\ If a subsequent Commission proceeding arises from the same 
nucleus of operative facts as two covered actions for which we have 
already made awards, we will treat the subsequent proceeding as part 
of the covered action to which it bears the closest relationship.
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11. Rule 21F-4(e)--Monetary Sanctions
    Proposed Rule 21F-4(e) tracked the definition of ``monetary 
sanctions'' found in Section 21F(a)(4) of the Exchange Act 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.\242\ We received no 
comments on the proposed rule. We are adopting the rule as proposed. As 
was explained in our Proposing Release, we interpret the reference in 
Section 21F(a)(4) to ``penalties, disgorgement, and interest'' to be 
examples of monetary sanctions, and not exclusive. Thus, regardless of 
how designated, we will consider all amounts that are ``ordered to be 
paid'' in a Commission action or a related action as ``monetary 
sanctions'' for purposes of Section 21F.
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    \242\ 15 U.S.C. 78u-6(a)(4).
---------------------------------------------------------------------------

12. Rule 21F-4(f)--Appropriate Regulatory Agency
a. Proposed Rule
    Section 3(a)(34) of the Exchange Act defines the term ``appropriate 
regulatory agency.'' Consistent with this definition, the proposed rule 
defined the term ``appropriate regulatory agency'' to mean the 
Commission, the Comptroller of the Currency, the Board of Governors of 
the Federal Reserve System, the Federal Deposit Insurance Corporation, 
the Office of Thrift Supervision, and any other agencies that may be 
added to Section 3(a)(34) of the Exchange Act by future amendment.\243\ 
Although Section 3(a)(34) defines the Commission and these other 
agencies to be ``appropriate regulatory agencies'' for specified 
functions and purposes, we stated in our Proposing Release that we 
would treat these agencies as ``appropriate regulatory agencies'' for 
all purposes under these rules. This would mean that, under Section 
21F(c)(2) \244\ and Rule 21F-8, a member, officer, or employee of one 
of the designated agencies would be ineligible to receive a 
whistleblower award 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.\245\
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    \243\ Title III of Dodd-Frank abolishes the Office of Thrift 
Supervision and transfers its functions to other agencies one year 
after the date of enactment, unless the transfer date is extended.
    \244\ 15 U.S.C. 78u-6(c)(2).
    \245\ See Section 21F(c)(2)(A), 15 U.S.C. 78u-6(c)(2)(A).
---------------------------------------------------------------------------

b. Comments Received
    Two commenters supported our definition.\246\ One commenter 
suggested that, in cases involving auditors, we should treat the PCAOB 
as an ``appropriate regulatory agency.'' \247\
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    \246\ See letters from Chris Barnard and Georg Merkl.
    \247\ See letter from Auditing Standards Committee.
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c. Final Rule
    After considering the comments, we are adopting Rule 21F-4(f) as 
proposed. As Congress placed Section 21F in the Exchange Act, we 
believe it appropriate to define ``appropriate regulatory agency'' for 
purposes of Section 21F consistently with the existing Exchange Act 
definition of the same term. For this reason, we have determined not to 
define ``appropriate regulatory agency'' to include the PCAOB or any 
other authority not set forth in Section 3(a)(34) of the Exchange Act.
    This approach does not inappropriately exclude the PCAOB for any 
relevant purposes under our rules. Section 21F(c)(2)(A) \248\ and Rule 
21F-8(c)(1) exclude from award eligibility members, officers, or 
employees of ``appropriate regulatory agencies,'' and

[[Page 34329]]

of the PCAOB. Similarly, under Section 21F(h)(2)(D) \249\ and Rule 21F-
7(a)(2), the PCAOB is separately set forth as an authority with which 
we may share whistleblower-identifying information.\250\
---------------------------------------------------------------------------

    \248\ 15 U.S.C. 78u-6(c)(2)(A).
    \249\ 15 U.S.C. 78u-6(h)(2)(D).
    \250\ However, Section 21F does not permit us to treat PCAOB 
actions as ``related actions'' for purposes of payment of an award. 
See Sections 21F(a)(5), 15 U.S.C. 78u-6(a)(5) and 21F(h)(2)(D), 15 
U.S.C. 78u-6 (h)(2)(D).
---------------------------------------------------------------------------

13. Rule 21F-4(g)--Appropriate Regulatory Authority
    Rule 21F-4(g) defines an ``appropriate regulatory authority'' to 
mean an appropriate regulatory agency other than the Commission.
    Section 21F(h)(2)(D) \251\ of the Exchange Act provides that, 
without the loss of its status as confidential in the hands of the 
Commission, we may provide information that identifies a whistleblower 
to other authorities set forth in the statute, including ``an 
appropriate regulatory authority.'' Through the operation of Section 
21F(a)(5),\252\ we are also directed to pay awards on related actions 
brought by an ``appropriate regulatory authority.''
---------------------------------------------------------------------------

    \251\ 15 U.S.C. 78u-6(h)(2)(D).
    \252\ 15 U.S.C. 78u-6(a)(5).
---------------------------------------------------------------------------

    The proposed rules did not include a definition of ``appropriate 
regulatory authority.'' Instead, we used the defined Exchange Act term 
``appropriate regulatory agency'' for purposes of the provisions 
dealing with ineligibility for awards, where that term expressly 
appears,\253\ as well as the provisions dealing with sharing of 
whistleblower-identifying information and awards in connection with 
related actions, where the statute actually uses the term ``appropriate 
regulatory authority.'' \254\ As a result of this approach, the 
proposed rules could have been read to mean that an action brought by 
the Commission was a ``related action,'' even though our intention was 
to consider only actions brought by authorities other than the 
Commission as ``related actions.''
---------------------------------------------------------------------------

    \253\ Section 21F(c)(2), 15 U.S.C. 78u-6(c)(2); Proposed Rule 
21F-8(c).
    \254\ Section 21F(a)(5) and (h)(2)(D)(i), 15 U.S.C. 78u-6(a)(5) 
and (h)(2)(D)(i); Proposed Rules 21F-3(b) and 21F-7(a)(2).
---------------------------------------------------------------------------

    In response to comments, and as discussed above, we have revised 
our definition of ``action'' in order to provide for payment of awards 
on additional Commission enforcement actions that might otherwise have 
qualified as ``related actions'' under a literal reading of the 
proposed rules. As a result of that revision, there is no other reason 
to treat the Commission as an ``appropriate regulatory authority'' for 
the purposes set forth in the statute. Accordingly, in order to avoid 
confusion and to establish a single consistent route to payment of an 
award based on Commission enforcement actions, we have determined to 
adopt a separate definition of the term ``appropriate regulatory 
authority'' that excludes the Commission.\255\
---------------------------------------------------------------------------

    \255\ As noted, Section 21F(h)(2)(D) provides that, ``without 
the loss of its status as confidential in the hands of the 
Commission,'' we may provide whistleblower-identifying information 
to ``an appropriate regulatory authority.'' Thus, it seems clear 
that for that purpose the term ``appropriate regulatory authority'' 
must apply to entities other than the Commission.
---------------------------------------------------------------------------

14. Rule 21F-4(h)--SRO
    Proposed Rule 21F-4(g) defined the term ``self-regulatory 
organization'' to mean any national securities exchange, registered 
securities association, registered clearing agency, the Municipal 
Securities Rulemaking Board, and any other organizations that may be 
defined as self-regulatory organizations under Section 3(a)(26) of the 
Exchange Act. As was explained in our Proposing Release, Section 
3(a)(26) includes each of these organizations as a ``self-regulatory 
organization,'' except that the Municipal Securities Rulemaking Board 
is designated as a self-regulatory organization solely for purposes of 
Sections 19(b) and (c) of the Exchange Act (relating to 
rulemaking).\256\ 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.
---------------------------------------------------------------------------

    \256\ 15 U.S.C. 78s(b) and (c).
---------------------------------------------------------------------------

    The few commenters on this proposal all supported it.\257\ We are 
adopting Rule 21F-4(g) as proposed, but re-designating it as Rule 21F-
4(h).
---------------------------------------------------------------------------

    \257\ See letters from Auditing Standards Committee, Georg 
Merkl, and Chris Barnard.
---------------------------------------------------------------------------

E. Rule 21F-5--Amount of Award

a. Proposed Rule
    Proposed Rule 21F-5 stated 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 is the range that is specified in 
Section 21F(b)(1) of the Exchange Act.
b. Comments Received
    We received few comments on this section. One commenter, a Member 
of Congress, suggested that we should consider placing an upper-end 
limit on the dollar amount that any one whistleblower could receive to 
avoid giving excessive awards.\258\ Another commenter suggested that we 
should give further guidance on how award percentages would be 
determined as between Commission and related actions.\259\
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    \258\ Letter from Senator Carl Levin.
    \259\ Letter from Auditing Standards Committee, Institute of 
Internal Auditors.
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c. Final Rule
    We are adopting the final rule as proposed, except that we have 
added a new paragraph (a) to reflect Congress's clear direction that 
the determination of the amount of an award lies in our 
discretion.\260\
---------------------------------------------------------------------------

    \260\ See Section 21F(c)(1)(A), 15 U.S.C. 78u-6(c)(1)(A).
---------------------------------------------------------------------------

    Paragraph (b) of Section 21F of the Exchange Act 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. 
Our final rule tracks this provision. 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. As we noted in our 
proposed rule, 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. But, in any case, the amounts would, in 
total, fall within the statutory range of 10 to 30 percent. As to the 
suggestion that we use our discretion to avoid giving excessive awards, 
we note that the statute requires that we give an award of a minimum of 
10 percent of the amount collected regardless of the overall size, and 
we do not have discretion to reduce that statutory minimum.

F. 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, Rule 21F-6 sets forth the criteria 
that the Commission will take into consideration in determining the 
percentage of the award between 10 and 30 percent.

[[Page 34330]]

a. Proposed Rule
    As proposed, Rule 21F-6 provided that the Commission would consider 
four general criteria, when determining the percentage of a 
whistleblower award: (1) Significance of the information provided by a 
whistleblower to the success of the Commission action or related 
action; (2) degree of assistance provided by the whistleblower and any 
legal representative of the whistleblower in the Commission action or 
related action; (3) programmatic interest of the Commission in 
deterring violations of the securities laws by making awards to 
whistleblowers who provide information that leads to successful 
enforcement actions; and (4) whether an award otherwise enhances the 
Commission's ability to enforce the Federal securities laws, protect 
investors, and encourage the submission of high quality information 
from whistleblowers. The proposing release also stated that, when 
determining the percentage of a whistleblower award, the Commission 
would also be authorized to consider the following optional 
considerations: (1) Character of the enforcement action; (2) dangers to 
investors or others presented by the underlying violations involved in 
the enforcement action; (3) timeliness, degree, reliability, and 
effectiveness of the whistleblower's assistance; (4) time and resources 
conserved as a result of the whistleblower's assistance; (5) whether 
the whistleblower encouraged or authorized others to assist the staff 
who might otherwise not have participated in the investigation or 
related action; (6) any unique hardships experienced by the 
whistleblower as a result of his or her reporting and assisting in the 
enforcement action; (7) degree to which the whistleblower took steps to 
prevent the violations from occurring or continuing; (8) efforts 
undertaken by the whistleblower to remediate the harm caused by the 
violations; (9) whether the information provided by the whistleblower 
related to only a portion of the successful claims brought in the 
Commission or related action; (10) culpability of the whistleblower; 
and (11) whether, and the extent to which, a whistleblower reported the 
possible violation through effective internal whistleblower, legal, or 
compliance procedures before reporting the violations to the 
Commission.
b. Comments Received
    We received a wide range of comments on Proposed Rule 21F-6. The 
comments addressed the general methodology for making award 
determinations, and suggestions for additional criteria to be included 
in the rule. Commenters also responded to our specific questions about 
whether to include in the rule criteria concerning whether to increase 
awards to whistleblowers who reported into an internal compliance or 
reporting system and whether to reduce awards to culpable 
whistleblowers.
    With respect to methodology, some commenters recommended that we 
adopt a more transparent methodology for making award 
determinations.\261\ Others urged we adopt a methodology in which 
certain criteria would have the same impact on our award determinations 
in all cases, such as by giving the factor greater weight than other 
criteria,\262\ or by using a factor to decrease a whistleblower's award 
\263\ or to cap a whistleblower's award at 10 percent.\264\ Several 
commenters suggested that some of the optional considerations for 
making awards outlined in the release should be required and placed 
into the rule text.\265\ Other commenters recommended additional 
factors that should be considered by the Commission when making an 
award.\266\
---------------------------------------------------------------------------

    \261\ See, e.g., letters from Harold Burke and Partrick Burns.
    \262\ See the letter from the NSCP.
    \263\ See, e.g., letters from Valspar, Institute of Internal 
Auditors, and Washington Legal Foundation.
    \264\ See, e.g., letters from Anixter Int., Business Roundtable, 
Taft, Financial Services Roundtable, Alcoa Group.
    \265\ See, e.g., letters from the Association of Corporate 
Counsel, Foster Wheeler, Anixter Int., Business Roundtable, 
Financial Services Roundtable, Society of Corporate Secretaries, 
Wells Fargo, Ethics & Compliance Officer Association, Alcoa Group, 
Deloitte, CCMC, Apache Group.
    \266\ See, e.g., letters from Harold Burke (whether the 
submission exposed a nationwide practice; whether the whistleblower, 
or whistleblower's counsel, did not provide or offer to provide any 
help after submitting the tip, or hampered the government's efforts 
in developing its case; and whether the whistleblower substantially 
delayed reporting the fraud); John Wahh (whether the whistleblower 
benefitted from the securities violation); Chris Barnard (the role 
and culpability of the whistleblower in the reported securities 
violations); Auditing Standards Committee (the relative amount of 
the award, rather than the relative percentage amount); Georg Merkl 
(the economic risk the whistleblower took to come forward and report 
the securities violations); and DC Bar (new more detailed criteria 
for encouraging use of existing compliance programs).
---------------------------------------------------------------------------

    Commenters expressed strong and divergent views on whether to 
include a factor related to a whistleblower's use of internal 
compliance and reporting systems. Many commenters suggested that the 
optional award consideration relating to whether a whistleblower 
reported a possible securities violation through effective internal 
whistleblower, legal, or compliance procedures before reporting it to 
the Commission should be listed as a required factor in the rule 
text.\267\ Others, however, argued that the optional award 
consideration should be eliminated because it is inconsistent with the 
statute's purpose, vague, and impractical because it would require the 
Commission to independently determine the effectiveness of internal 
compliance programs and to make subjective conclusions about the 
whistleblower's specific circumstances and mindset.\268\
---------------------------------------------------------------------------

    \267\ See, e.g., letters from the Association of Corporate 
Counsel, Foster Wheeler, Anixter Int., Business Roundtable, 
Financial Services Roundtable, Society of Corporate Secretaries, 
Wells Fargo, Ethics & Compliance Officer Association, Alcoa Group, 
Deloitte, and CCMC.
    \268\ See, e.g., letters from the NCCMP, Georg Merkl, Daniel J. 
Hurson, and Auditing Standards Committee.
---------------------------------------------------------------------------

    In response to our question regarding whether the Commission should 
consider a whistleblower's role and culpability in the unlawful conduct 
to exclude the whistleblower from eligibility or as a criteria that 
would reduce the award amount, comments were also sharply divided.\269\ 
Many commenters recommended that the Commission should reduce a 
culpable whistleblower's award because the failure to do so would 
create incentives for individuals to engage in wrongdoing or to conceal 
wrongdoing.\270\ Other commenters suggested that the Commission should 
place this optional consideration into the rule text so that it would 
be required to be considered in every case.\271\ Many other commenters 
opposed rules that would exclude culpable whistleblowers from 
eligibility for awards or would reduce the amount of their awards 
beyond what is already contained in the statute.\272\ These commenters 
contended that, without sufficient financial incentives, insiders with 
the most knowledge and evidence about wrongdoing will not come forward, 
resulting in securities laws violations going undetected (or at least

[[Page 34331]]

experiencing a further delay before they are detected).
---------------------------------------------------------------------------

    \269\ See, e.g., letters from the Auditing Standards, Apache 
Group, Georg Merkl, NWC, Connolly & Finkel, Target, SIFMA, Business 
Roundtable, Washington Legal Foundation, Morgan Lewis, Financial 
Services Roundtable, Society of Corporate Secretaries, Wells Fargo, 
TRACE International, Inc, Alcoa Group, Oppenheimer Funds, 
Association of Corporate Counsel, and CCMC.
    \270\ See, e.g., letters from Connolly & Finkel, Target, SIFMA, 
Business Roundtable, Washington Legal Foundation, Morgan Lewis, 
Financial Services Roundtable, Society of Corporate Secretaries, 
Wells Fargo, Trace, Alcoa Group, Oppenheimer Funds, Association of 
Corporate Counsel, and CCMC.
    \271\ See, e.g., letters from Apache Group.
    \272\ See, e.g., Auditing Standards, Georg Merkl, and NWC.
---------------------------------------------------------------------------

c. Final Rule
    Although we continue to believe the four criteria set forth in 
Proposed Rule 21F-6--three of which derive from the statute--are 
important, we have significantly revised and restructured the final 
rule in response to comments. The changes are designed to describe more 
specifically the factors relevant to the Commission's determinations, 
and thus make award determinations more transparent, predictable, and 
fair. Similar to the approach used by the Department of Justice and 
Internal Revenue Service,\273\ we adopt a methodology for determining 
awards where some factors suggest an increase and others a decrease in 
award percentage. This analytical framework incorporates into the final 
rule text the four required criteria from the proposed rule and the 
eleven optional considerations from the proposing release.
---------------------------------------------------------------------------

    \273\ E.g., Internal Revenue Manual Sec.  25.2.2.9.2.
---------------------------------------------------------------------------

    Under the final rule, when determining the percentage of a 
whistleblower award, the following required criteria may increase a 
whistleblower's award percentage: (1) Significance of the information 
provided by the whistleblower (the first required criteria in the 
proposed rule and the statute); (2) assistance provided by the 
whistleblower (the second required criteria in the proposed rule and 
the statute); (3) law enforcement interest in making a whistleblower 
award (the third and fourth required criteria in the proposed rule and 
the third required criteria in the statute); and (4) participation by 
the whistleblower in internal compliance systems. In contrast, the 
following required criteria may decrease a whistleblower's award 
percentage: (1) Culpability of the whistleblower; (2) unreasonable 
reporting delay by the whistleblower; and (3) interference with 
internal compliance and reporting systems by the whistleblower. Under 
many of the required criteria, we have set forth in the final rule 
related optional considerations that may be taken into account when 
considering the criteria. These potentially relevant factors are 
designed to provide greater detail regarding how award determinations 
will be made and to address commenters' other concerns and 
recommendations.
    Although we have considered the views of commenters who recommended 
that the presence or absence of certain criteria should have a distinct 
and consistent impact on our award determinations, the final rule does 
not establish such a methodology that would permit a mathematical 
calculation of the appropriate award percentage. Since every 
enforcement matter is unique, the analytical framework adopted by the 
Commission in the final rule provides general principles without 
mandating a particular result. Accordingly, no attempt has been made to 
list the factors in order of importance, weigh the relative importance 
of each factor, or suggest how much any factor should increase or 
decrease the award percentage. Depending upon the facts and 
circumstances of each case, some factors may not be applicable or may 
deserve greater weight than others. Furthermore, the absence of any one 
of the positive factors does not mean that the award percentage will be 
lower than 30 percent, nor does the absence of negative factors mean 
the award percentage will be higher than 10 percent. Thus, a 
whistleblower would not be penalized for not satisfying any one of the 
positive factors. For example, a whistleblower who provides the 
Commission with significant information about a possible securities 
violation and provides substantial assistance in the Commission action 
or related action could receive the maximum award regardless of whether 
the whistleblower satisfied other factors such as participating in 
internal compliance programs. In the end, we anticipate that the 
determination of the appropriate percentage of a whistleblower award 
will involve a highly individualized review of the facts and 
circumstances surrounding each award using the analytical framework set 
forth in the final rule.
    In response to concerns expressed by commenters that the proposed 
rules could incentivize whistleblowers to bypass corporate compliance 
programs, delay reporting violations, or otherwise interfere with 
internal compliance systems in order to enhance their future award, we 
have taken several steps to address this in the final rule. First, to 
reflect the important investor protection role that corporate 
compliance programs can serve and increase the incentive for 
whistleblowers to participate in these programs, the final rule 
includes a positive factor that requires the Commission to assess 
whether the whistleblower participated in his or her company's internal 
compliance and reporting systems.\274\ Second, to minimize ongoing 
investor harm, maximize the deterrent impact of our enforcement cases, 
and to discourage delayed reporting by whistleblowers, the final rule 
includes a negative factor that requires the Commission to assess 
whether the whistleblower substantially and unreasonably delayed 
reporting the securities violations. Lastly, to penalize whistleblowers 
who attempt to undermine their employer's internal compliance or 
reporting systems, the final rule includes a negative factor that 
requires the Commission to assess whether there is evidence provided to 
the Commission that the whistleblower intentionally interfered with his 
or her company's internal compliance systems. Together, these 
provisions are designed to give whistleblowers appropriate incentives 
to report securities violations voluntarily to their corporate 
compliance programs and not to impair the effectiveness of these 
important programs.
---------------------------------------------------------------------------

    \274\ Unlike the optional consideration in the release to the 
proposed rule, the final rule does not require the Commission to 
evaluate whether the internal compliance and reporting systems of an 
entity are ``effective.'' We believe that defining what constitutes 
``effective'' internal compliance procedures for a wide range of 
entities is beyond the scope of these rules and determining whether 
such procedures existed at a specific entity would impose an 
unnecessary administrative burden on the staff. Accordingly, the 
final rule relies on whistleblowers to determine whether reporting 
potential securities violations internally would be appropriate or 
desirable at their entity, without requiring us to independently and 
subsequently assess the effectiveness of their entity's internal 
compliance procedures. However, in determining whether to give a 
company the opportunity to investigate and report back, the 
Commission may consider information we have about the company's 
internal compliance programs.'' See supra at n. 199.
---------------------------------------------------------------------------

    As discussed in greater detail below in the discussion of Rule 21F-
16, we do not believe that a per se exclusion for culpable 
whistleblowers is consistent with Section 21F of the Exchange Act. By 
allowing certain less-culpable whistleblowers to receive awards 
consistent with the limitations set forth in the final rules, we have 
provided incentives for persons involved in wrongdoing to come forward 
and disclose illegal conduct involving others while limiting awards to 
those whistleblowers. However, after considering the public policy 
concerns expressed by commenters, we have included in the final rule a 
negative factor that requires the Commission to assess the culpability 
or involvement of the whistleblower in matters associated with the 
Commission's action or related actions.

G. Rule 21F-7--Confidentiality of Submissions

a. Proposed Rule
    Proposed Rule 21F-7 reflected the confidentiality requirements set 
forth in

[[Page 34332]]

Section 21F(h)(2) of the Exchange Act \275\ 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), we proposed Rule 21F-7 
to explain 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.\276\
---------------------------------------------------------------------------

    \275\ 15 U.S.C. 78u-6(h)(2).
    \276\ Under Section 21F(h)(2), whistleblower-identifying 
information is also expressly exempted from the provisions of the 
Freedom of Information Act, 5 U.S.C. 552.
---------------------------------------------------------------------------

    Paragraph (a)(1) of the proposed rule authorized 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.\277\ Proposed paragraph (a)(2) authorized 
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 rule stated that the Commission 
may determine what assurances of confidentiality are appropriate prior 
to disclosing such information. Paragraph (a)(3) authorized disclosure 
in accordance with the Privacy Act of 1974.
---------------------------------------------------------------------------

    \277\ See U.S. Const. Amend. VI.
---------------------------------------------------------------------------

    Because many whistleblowers may wish to provide information 
anonymously, paragraph (b) of the proposed rule stated that anonymous 
submissions will be permitted with certain specified conditions. 
Proposed paragraph (b)(1) required 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 was to prevent 
fraudulent submissions and to facilitate communication and assistance 
between the whistleblower and the staff. Any whistleblower may be 
represented by counsel--whether submitting information anonymously or 
not.\278\ Proposed paragraph (b)(2) required that anonymous 
whistleblowers and their counsel follow the required procedures 
outlined in Proposed Rule 21F-9. Paragraph (b)(3) required that 
anonymous whistleblowers disclose their identity, pursuant to the 
procedures outlined in Proposed Rule 21F-10, before the Commission will 
pay any award, as is required by the statute. In the proposing release, 
we also solicited comments on whether we should include limits on the 
fees attorneys may collect from whistleblowers under our program.
---------------------------------------------------------------------------

    \278\ See Section 21F(d)(1), 15 U.S.C. 78u-6(d)(1). Under the 
statute, however, an anonymous whistleblower seeking an award is 
required to be represented by counsel. Section 21F(d)(2), 15 U.S.C. 
78u-6(d)(2).
---------------------------------------------------------------------------

b. Comments Received
    We received few comments related to the confidentiality provisions. 
One commenter expressed concern about the Commission's exercise of its 
authority to share the identity of a whistleblower with a foreign law 
enforcement or regulatory authority because the whistleblower will have 
no assurance against the possibility of adverse consequences other than 
``trust[ing] the [foreign] country's regulators''.\279\ Another 
commenter stated that the Commission has no authority to compel an 
attorney to reveal the identity of an anonymous whistleblower, and 
that, in cases where we know the whistleblower's identity, our rules 
should require that we notify the whistleblower, and provide the 
whistleblower an opportunity to seek a protective order, any time the 
whistleblower's identity may be revealed.\280\ A third commenter noted 
that allowing a whistleblower to remain anonymous could encourage false 
or overstated claims.\281\
---------------------------------------------------------------------------

    \279\ See letter from Eric Dixon, LLC; see also pre-release 
letter from Ruby Monroe (expressing concern for confidentiality of 
whistleblowers from foreign jurisdictions).
    \280\ Letter from NWC.
    \281\ Letter from Bruce McPheeters.
---------------------------------------------------------------------------

    Because an anonymous whistleblower must retain an attorney and 
because an attorney representing a whistleblower will be deemed to be 
practicing before the Commission, we requested comments on whether the 
Commission should adopt rules governing conduct by attorneys 
representing whistleblowers and in particular rules regarding 
attorneys' fees in the representation of whistleblowers. The majority 
of commenters opposed the adoption of a rule regarding fees.\282\ The 
rationales offered in support of this objection included that such a 
rule would make it nearly impossible for corporate whistleblowers to 
obtain attorneys to represent them in Dodd-Frank cases; excessive 
attorneys' fees already are governed by state bar rules; and such a 
rule would interfere with the contractual relationship between a 
whistleblower and his or her attorney.
---------------------------------------------------------------------------

    \282\ See, e.g., NWC; Grohovsky Group; American Association for 
Justice; Continewity; Stuart D. Meissner, LLC.
---------------------------------------------------------------------------

    In contrast, several commenters recommended that the Commission 
adopt by rule or otherwise publicly state that attorneys representing a 
whistleblower will not be entitled to receive a contingency fee based 
on any amount ultimately rewarded to the whistleblower.\283\ The 
rationales offered for this recommendation included that a 
whistleblower's counsel is not likely to participate materially in the 
investigation of a matter filed through the whistleblower program; 
\284\ public companies may be inundated with frivolous claims or claims 
based on incomplete information brought by attorneys who represent 
multiple complainants, hoping that one of them will be successful in an 
award from the Commission; \285\ and a whistleblower in a difficult 
situation may have limited ability to negotiate appropriate fees for 
representation.\286\
---------------------------------------------------------------------------

    \283\ Letters from Baker Donelson; Washington Legal Foundation; 
Institute of Internal Auditors.
    \284\ Letter from Baker Donelson.
    \285\ Id.
    \286\ Letter from Institute of Internal Auditors.
---------------------------------------------------------------------------

    Other commenters addressed the question of whether the Commission 
should adopt rules regarding attorney

[[Page 34333]]

conduct generally. Two commenters suggested that the Commission adopt 
attorney conduct standards for attorneys representing whistleblowers 
since a myriad of law firms will be advertising and soliciting work on 
whistleblowing. One suggested adopting, for the representation of 
whistleblowers, some form of 17 CFR 205.1 et seq., which details the 
requirements of Section 307 of the Sarbanes Oxley Act addressing 
standards of professional conduct for attorneys appearing and 
practicing before the Commission in the representation of issuers.\287\ 
The other noted that the Commission should clarify or confirm that an 
attorney representing a whistleblower under Section 21F(d)(1) or (2) 
will be deemed to be ``appearing or practicing before the Commission'' 
and thereby be bound by Section 4C of the Exchange Act and Section 102 
of the Rules of Practice of the Commission.\288\
---------------------------------------------------------------------------

    \287\ Letter from Americans for Limited Government.
    \288\ Letter from Baker Donelson, PC.
---------------------------------------------------------------------------

c. Final Rule
    We are adopting Rule 21F-7 largely as proposed. The rule tracks the 
provisions of the statute and identifies those instances where the 
Commission, in furtherance of its regulatory responsibilities, may 
provide information to certain delineated recipients.
    We made two changes. First, we changed the term ``appropriate 
regulatory agency'' to ``appropriate regulatory authority.'' As 
discussed above, our use of this newly-defined term, which excludes the 
Commission, better reflects the facts that we share information with 
other agencies, and, that under our rules, related actions similarly 
are actions brought by other agencies that are based upon a 
whistleblower's information.\289\
---------------------------------------------------------------------------

    \289\ See Rule 21F-4(g).
---------------------------------------------------------------------------

    Second, where we share information that could reasonably be 
expected to reveal the identity of a whistleblower with foreign 
securities or law enforcement authorities, we proposed that we ``may 
determine what assurances of confidentiality'' we deem necessary. We 
have changed that language to state that we ``will'' make such a 
determination, thereby making clear, consistent with Section 21F, that 
we will obtain appropriate assurances of confidentiality before sharing 
such information with foreign authorities. We plan to work closely with 
whistleblowers or their attorney in an effort to take appropriate steps 
to maintain their confidentiality, consistent with the requirements of 
Section 21F(h)(2).\290\ At the same time, however, Congress expressly 
authorized us to disclose whistleblower-identifying information subject 
to the limitations and conditions set forth in Section 21F(h)(2). 
Accordingly, we do not believe it would be consistent with either 
Congress's intent or with the proper exercise of our enforcement 
responsibilities to require by rule that our staff notify a 
whistleblower before any authorized disclosure, and provide the 
whistleblower with an opportunity to seek a protective order.
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    \290\ For example, we are adding a question to our whistleblower 
submission form that asks whistleblowers to tell us if they are 
giving us any particular documents or other information in their 
submission that they believe could reasonably be expected to reveal 
their identity.
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    In addition, as we noted in our proposing release, pursuant to Rule 
102(e) of the Commission's Rules of Practice,\291\ 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.\292\ Representation of 
whistleblowers will constitute practice before the Commission, and 
thus, 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).
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    \291\ 17 CFR 201.102(e).
    \292\ 17 CFR 102(f).
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    We have also decided not to include a rule regarding attorneys' 
fees in our Final Rule. While there are reasonable arguments on both 
sides, we think the better approach is to leave issues of attorneys' 
fees to state bar authorities and to contractual arrangements between 
prospective whistleblowers and their attorneys. We believe that both 
state bar authorities and individual whistleblowers are better equipped 
than the Commission to make determinations regarding the appropriate 
amount of attorneys' fees.

H. Rule 21F-8--Eligibility

a. Proposed Rule
    Paragraph (a) of Proposed Rule 21F-8 provided that whistleblowers 
must provide information in the form and manner required by these rules 
in order to be eligible for a whistleblower award.\293\ The proposed 
rule also stated that the Commission, in its sole discretion, may waive 
any of these procedural requirements based upon a showing of 
extraordinary circumstances.
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    \293\  See Section 21F(c)(2)(D), which prohibits the Commission 
from paying an award to any whistleblower ``who fails to submit 
information to the Commission in such form as the Commission may, by 
rule, require. 15 U.S.C. 78u-6(c)(2)(D).''
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    The specific procedures required for submitting original 
information and making a claim for a whistleblower award were described 
in Proposed Rules 21F-9 through 21F-11. Proposed Rule 21F-8(b) 
contained several additional procedural requirements designed to assist 
the Commission in evaluating and using the information provided. These 
included 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.
    Paragraph (b) of the proposed rule also required 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. Proposed paragraph (b) also 
authorized the staff to require that a whistleblower enter into a 
confidentiality agreement in a form acceptable to the Office of the 
Whistleblower, including a provision that a violation may result in the 
whistleblower being ineligible for an award.\294\
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    \294\ Section 21F(e) of the Exchange Act authorizes the 
Commission to require that a whistleblower enter into a contract. 15 
U.S.C. 78u-6(e).
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    Paragraph (c) of Proposed Rule 21F-8 recited the categories of 
individuals 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

[[Page 34334]]

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 made foreign officials ineligible to 
receive a whistleblower award. In order to prevent evasion of these 
exclusions, paragraph (c)(5) of the proposed rule also provided that 
persons who acquire information from ineligible individuals are 
ineligible for an award. In addition, paragraph (c)(6) made 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.
b. Comments Received
    We received several comments on these sections. One commenter 
opposed the provision under which the Commission could require 
whistleblowers to enter into confidentiality agreements, stating that 
the statute does not authorize this requirement and it may violate a 
whistleblower's free speech rights and interfere with a whistleblower's 
ability to sue Commission staff.\295\ Other commenters stated that the 
Commission should not add to the list of ineligible persons designated 
by Congress.\296\ One commenter suggested that the provision making 
ineligible any whistleblower who knowingly uses a false writing or 
document in a submission should be redrafted to clarify that the 
exclusion only applies if a whistleblower does so with intent to 
deceive the Commission. The commenter stated that this change would 
permit a whistleblower to submit a false document created by someone 
else as evidence of that other person's or entity's wrongdoing.\297\
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    \295\ Letter from NWC.
    \296\ Letters from Stuart D. Meissner, LLC, Chris Barnard.
    \297\ Letter from Grohovsky Group.
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    Another commenter noted that significant information could come 
from whistleblowers who are employees of state-owned foreign companies, 
and that our rule would treat those employees as foreign officials and 
would thus deem them ineligible for an award.\298\
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    \298\ Letter from NWC.
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    Although proposed Rule 21F-8(c)(5) was intended to prevent evasion 
of our rules by making ineligible any whistleblower who acquires 
information from other ineligible persons, some comments suggested 
that, as proposed, the rule was at once too broad and too narrow in 
certain respects. One commenter noted that a similar provision in 
proposed Rule 21F-4(b)(4) created, in effect, a ``hearsay exception'' 
that would exclude from eligibility any whistleblower who overheard an 
excluded individual talking about a fraud in which the other person was 
a participant.\299\ Another commenter pointed out that a culpable 
whistleblower could evade the limitations of proposed Rule 21F-15 
simply by providing information about violations to a third party.\300\
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    \299\ See letter from NWC.
    \300\ See letter from ABA.
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    Finally, one commenter urged that we deem ineligible any 
whistleblower who refused to cooperate with a company's internal 
investigation, or who provided inaccurate or incomplete information or 
otherwise hindered such an investigation.\301\
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    \301\ Letter from SIFMA.
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c. Final Rule
    After considering these comments, we are adopting the proposed rule 
with certain modifications. The eligibility requirements reflect the 
express requirements and limitations set forth in Section 21F, and are 
otherwise a reasonable exercise of our authority to adopt rules that 
are necessary or appropriate to implement the provisions of Section 
21F.
    As adopted, Rule 21F-8(b)(4) provides that a whistleblower may be 
required to enter into a confidentiality agreement as to any non-public 
information that the Commission provides to the whistleblower. The 
addition of the reference to ``non-public'' information that ``the 
Commission provides'' clarifies that the rule does not limit the 
whistleblower's use of information that he or she already knows, or 
learns from other sources, and does not acquire through our 
investigation.
    We have also changed proposed Rule 21F-8(c)(5) (now re-designated 
as Rule 21F-8(c)(6)) to provide that a person is ineligible if he or 
she acquires original information from either a person who is subject 
to the auditors exclusion found in paragraph (c)(4) (discussed below), 
unless the information is not excluded from that person's use, or the 
whistleblower is providing the Commission with information about 
possible violations involving that person, or from any person with 
intent to evade any provision of these rules. The first part of this 
provision tracks the language of Rule 21F-4(b)(4)(vi), and is simply 
intended to assure consistent treatment under Rule 21F-8 and Rule 21F-
4(b)(4) of potential whistleblowers who obtain their information from 
independent public accountants involved in engagements required under 
the Federal securities laws. The second part of this provision is 
designed to prevent persons who are prohibited or limited in making a 
claim under any provision of our rules (including culpable 
whistleblowers under Rule 21F-16) from evading our rules by colluding 
with a third party. This change also clarifies that the intent of the 
exclusion is to address efforts to evade our rules, and not persons who 
legitimately learn about violations being perpetrated by ineligible 
persons.
    We have decided to maintain the exclusion for ``foreign officials'' 
as proposed. The exclusion for foreign officials would include 
employees of foreign instrumentalities, including state-owned entities. 
Our conclusion is informed by the Foreign Corrupt Practices Act,\302\ 
which includes within its definition of ``foreign officials'' those who 
are employed by an instrumentality of a foreign government, which 
includes state-owned entities.\303\ We believe that it is appropriate 
to treat the exclusion for foreign officials under the whistleblower 
program consistent with the definition of foreign official under the 
FCPA, because FCPA enforcement actions are the contexts in which the 
exclusion is most likely to apply. Inconsistent treatment could, we 
believe, risk unnecessary confusion as to when and under what 
circumstances someone is a foreign official for purposes of two closely 
related provisions of the securities laws.
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    \302\ Broadly, the anti-bribery provisions of the FCPA make it 
unlawful for issuers (and their officers, directors, employees, 
agents and stockholders), domestic concerns, and foreign persons and 
entities (acting within the U.S.), to make, offer or authorize the 
payment of bribes, directly or indirectly, to foreign officials, 
foreign parties, foreign party officials, and foreign candidates for 
public office for the purpose of obtaining or retaining business for 
or with, or directing business to, any person. See 15 U.S.C. 78dd-1, 
et seq.
    \303\ A ``foreign official'' is defined in the FCPA as ``any 
officer or employee of a foreign government or any department, 
agency, or instrumentality thereof, or of a public international 
organization, or any person acting in an official capacity for or on 
behalf of any such government or department, agency, or 
instrumentality, or for or on behalf of any such public 
international organization.'' See 15 U.S.C. 78dd-2(h)(2)(A).
---------------------------------------------------------------------------

    In addition, whistleblower awards to employees of foreign state-
owned

[[Page 34335]]

entities have the potential to create some of the same negative 
repercussions discussed in the proposed rule, i.e., the 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), the incentive for foreign officials to make reports to the 
United States rather than to local authorities, and concerns about 
protection of foreign officials who become whistleblowers.
    We have also modified Rule 21F-8(c)(7) to clarify that the 
exclusion of a whistleblower for using any false writing or document 
that contains a false, fictitious, or fraudulent statement or entry 
will only apply when the whistleblower thereby intends to mislead or 
otherwise hinder the Commission or another authority in connection with 
a related action.\304\
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    \304\ See letter from Grohovsky Group.
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    We have determined not to adopt an eligibility exclusion based on a 
whistleblower's conduct with respect to an internal investigation. In 
some cases, a whistleblower may have a reasonable concern that causes 
him or her to report misconduct directly to the Commission. In other 
cases, this concern may be less justified. However, we believe that a 
categorical rule that excludes whistleblowers for failure to reasonably 
cooperate with internal investigations would create too much 
uncertainty, and too great a disincentive, for whistleblowers who are 
considering how to report misconduct. Thus, such a rule would undermine 
the effectiveness of the whistleblower program. In appropriate 
circumstances, however, we will consider the whistleblower's conduct in 
connection with an internal investigation in the determination of 
whether the whistleblower's conduct ``led to'' a successful enforcement 
action,\305\ and/or in determining the amount of an award.
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    \305\ For example, if a whistleblower hindered an internal 
investigation, but the company nonetheless self-reported violations, 
we could consider the whistleblower's conduct in determining whether 
the whistleblower caused us to open an investigation into the 
matter.
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    Finally, Rule 21F-8(c)(4) reflects the exclusions set forth in 
Section 21F(c)(2)(C) for persons who obtain information through the 
performance of an audit of financial statements and for whom a 
whistleblower submission ``would be contrary to the requirements of 
Section 10A'' of the Exchange Act.
    We are adopting Rule 21F-8(c)(4) as it was originally proposed 
without change, as it largely tracked the language of Section 
21F(c)(2)(C). The statute prohibits an award ``* * * to any 
whistleblower who gains the information through the performance of an 
audit of financial statements required under the securities laws and 
for whom such submission would be contrary to the requirements of 
section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1).''
    Rule 21F-8(c)(4) accordingly only disqualifies those submissions 
that are contrary to Section 10A. The most obvious example is where the 
auditor did not file a ``10A Report'' with the SEC's Office of Chief 
Accountant, but instead submitted information about the company's 
illegal act to us to be considered for the award under the 
whistleblower program.
    In adopting this rule we carefully considered the comments on Rule 
21F-4(b)(4)(iii) because those issues are similar to ones implicated in 
determining eligibility. In connection with that proposal, some 
commenters advocated that individuals should not be allowed to make a 
submission alleging that the firm violated Section 10A, while others 
recommended allowing such a rule.\306\ The rule we are adopting today 
allows an accountant to make a submission alleging that his firm 
violated Section 10A (or other professional standards), because such a 
submission is not ``contrary to the requirements of Section 10A.'' If 
such a submission is made, then, as is the case with Rule 21F-
4(b)(4)(iii)(D), the whistleblower will also be able to obtain an award 
if the information leads to a successful action against the engagement 
client.
---------------------------------------------------------------------------

    \306\ Letters from PwC, KPMG, Center for Audit Quality 
(``CAQ''), Deloitte, Ernst & Young (``EY''), TAF. Compare, CAQ 
(``The CAQ has concerns about the Proposed Rules to the extent that 
they permit whistleblower awards for information reported by an 
independent public accountant regarding his or her firm's 
performance of services related to an engagement required under the 
securities laws (i.e., whistleblower reporting by an accountant with 
respect to his or her own firm's performance of services''), with 
TAF (``* * * where that legal duty is not honored, and the audit 
film fails to comply with its obligations under Section 10A, a 
whistleblower's submission of the information to the SEC is 
consistent with both Section 10A and the Commission's overall 
enforcement mission. In such circumstance, the policies underlying 
both Section 10A and Dodd Frank weigh in favor of rewarding the 
whistleblower who reports wrong doing when the audit firm has failed 
to.'').
---------------------------------------------------------------------------

    An allegation that a firm violated Section 10A is consistent with 
the statute especially when the allegation is that an audit firm failed 
to assess or investigate illegal acts or make a report to the 
Commission. Accordingly, a person can make a submission that alleges 
not only that the audit firm failed to make a report with the 
Commission under Section 10A(b)(3), but also that the firm failed to 
follow any other procedures set forth in Section 10A or professional 
standards.\307\ By specifically allowing allegations of violations of 
the Federal securities laws or professional standards the rule may help 
insure that wrongdoing by the firm (or its employees) is reported in a 
timely fashion. This is especially important because of the important 
gatekeeper role that auditors play in the securities markets.
---------------------------------------------------------------------------

    \307\ Violations of law are not restricted to the audit or 
interim review work performed by an audit firm. For example, if an 
employee observes insider trading, auditor independence failures at 
a firm or other quality control failures that are not specific to 
any particular audit, then a submission containing those allegations 
is permitted.
---------------------------------------------------------------------------

    Commission staff will carefully evaluate a submission alleging a 
Section 10A violation to determine whether it contains a specific and 
credible allegation of a violation of Section 10A.\308\ A specific and 
credible allegation is one made in good faith and is not a pretext for 
circumventing the requirements of Section 10A. In assessing whether an 
allegation of a firm's Section 10A violation is specific and credible, 
the staff may consider the facts and circumstances surrounding the 
submission, including the level of detail, documentary support, 
descriptions of particularized conduct or omissions by identified 
persons, as well as the materiality or non-triviality of the alleged 
Section 10A violation. For example, the Commission may consider, among 
other things:
---------------------------------------------------------------------------

    \308\ As with other submissions, the contents are sworn under 
penalty of perjury which provides additional safeguards against 
pretextual submissions.
---------------------------------------------------------------------------

     Whether the audit firm conducted an assessment of or 
investigation into the alleged illegal act by the issuer and the 
quality of that investigation;
     Whether the audit firm followed the requirements of 
Section 10A and its response to the allegation of an illegal act;
     The position or title of the whistleblower and the role 
the person played in the firm's violations;
     The role of the whistleblower in the Section 10A 
investigation or assessment; and
     The timing of the submission.
    We are also providing guidance about several important aspects of 
Rule 21F-8(c)(4). First, the information must be gained through the 
work done for an audit for an issuer.\309\ Non-issuers, such

[[Page 34336]]

as broker dealers or investment advisors,\310\ are not covered by 
Section 10A and, subject to Rule 21F-(b)(4)(iii)(D), submissions 
relating to them are allowed.
---------------------------------------------------------------------------

    \309\ The text of Section 10A only refers to audits of financial 
statements of issuers and thus the requirements--including the 
reporting requirements--are imposed on audits for issuers. Issuer is 
a defined term under Section 10A.
    \310\ In some instances, broker dealers or investment advisors 
may also be issuers as that term is defined in Section 10A.
---------------------------------------------------------------------------

    Second, we interpret the phrase ``through an audit of a company's 
financial statements'' in Rule 21F-8(c)(4) as meaning information that 
is learned through an audit of a company's financial statements when it 
is linked to audit procedures or audit work. Accordingly, the phrase 
clearly and most directly applies to members of an audit engagement 
team. It applies to the engagement partner, quality review partner, and 
other people working directly on the engagement. It also applies to 
foreign affiliates or specialists who are used by the engagement 
team.\311\
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    \311\ Information is also learned through an audit of a 
company's financial statements when other professionals learn of a 
company's illegal act as a result of communications with the audit 
engagement team as part of the audit. For example, if the national 
office of an audit firm were consulted about a possible illegal act, 
including accounting irregularities, then the national office 
personnel consulted on the matter would not be eligible for a 
whistleblower award based on that information. Similarly, if a tax 
professional at an audit firm were consulted to assist in auditing 
the tax footnote for an issuer and learned of an illegal act, then 
that person would not be eligible for a whistleblower award. In 
other words, where professional staff is performing procedures for 
an audit or have been contacted by someone performing procedures for 
an audit, the information was gained through an audit. However, if 
one of these other professionals who are performing work for an 
audit also learns of a violation by the audit firm or its associated 
persons, then he may be eligible for an award with respect to a 
violation by the firm.
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    Third, although both Dodd-Frank and Section 10A only refer to 
``audits of financial statements,'' we believe this includes quarterly 
reviews, which are frequently viewed as a step in the annual audit 
process and therefore may properly be considered as encompassed within 
Section 10A's scope. Accordingly, if an auditor discovers or detects an 
illegal act during either a quarterly review or annual audit, it is 
required to comply with Section 10A.\312\ An audit firm's failure to 
follow the procedures or otherwise comply with Section 10A when 
confronted with an illegal act--regardless of whether the violation is 
detected during a year-end audit or an interim review--is a violation 
of law and an individual would be able to make a submission alleging 
that his audit firm violated the law or professional standards.
---------------------------------------------------------------------------

    \312\ Under Section 10A auditors must notify senior management 
of the issuer and the audit committee of illegal acts even if they 
are immaterial to the financial statements. See Section 10A(b)(1).
---------------------------------------------------------------------------

    Information gained through the audit of financial statements 
extends beyond illegal conduct with respect to the financial statements 
themselves. Section 10A broadly defines ``illegal act'' as any ``act or 
omission that violates any law, or any rule or regulation having the 
force of law.'' Further, the statutory disqualification was not limited 
to information gained only about financial statements; rather, it 
disqualified a submission where the person ``gains the information 
through the performance of an audit of financial statements required 
under the securities laws.''
    In response to a footnote in the proposing release, certain 
commenters from the audit profession advocated expanding the scope of 
the exclusion to disqualify virtually all employees of accounting 
firms, regardless of whether those employees are performing audit 
services or are performing services for public companies.\313\ The 
footnote stated: ``The Commission anticipates this exclusion would also 
apply to information gained through another engagement by the 
independent public accountant for the same client, given that the 
independent public accountant would generally already have an 
obligation to consider the information gained in the separate 
engagement in connection with the Commission-required engagement.''
---------------------------------------------------------------------------

    \313\ E.g., PwC (``The exclusion should extend to all reports by 
employees of accounting firms with respect to information obtained 
through performing services of any nature for an audit client. The 
exclusion should not be limited to information obtained through the 
engagement required by the securities laws itself.''); Deloitte 
(``Deloitte urges the Commission to provide expressly in the final 
rules that whistleblowers whose information was obtained through any 
services to public company audit clients provided by an accounting 
firm are excluded from eligibility to receive a whistleblower 
award.'')
---------------------------------------------------------------------------

    As noted above, we are clarifying the application of information 
obtained ``through an audit of a company's financial statements'' with 
respect to firm personnel outside of the audit engagement team itself. 
We decline to codify a per se exclusion for all employees or all 
engagements, especially engagements involving non-issuer clients. 
Persons working on other engagements, to the extent that they are not 
covered by Section 10A or are not required under the Federal securities 
laws, will not be deemed ineligible simply because the engagement is 
with an audit client of the firm.
    Several commenters recommended that whistleblowers should have to 
use internal reporting processes by either reporting up the chain at 
the audit firm or reporting to the audit client.\314\ We are declining 
to adopt a rule that would require all employees of accounting firms 
use the internal processes whether at the audit firm or at the audit 
client. This approach is consistent with the final rule regarding 
internal compliance persons, and we address certain of these 
commenters' concerns through our adoption of Rule 21F-4(b)(4)(D).
---------------------------------------------------------------------------

    \314\ E.g., letter from Deloitte (````Any final rule should 
require, as a condition of eligibility to receive a monetary award 
that whistleblowers report their concerns fully and in good faith 
through company sponsored whistleblower systems before reporting 
externally. At a minimum, the final rules should require the 
concurrent submission of internal and external reports. In the 
alternative, any final rule should expressly state that good-faith 
internal reporting prior to making any external report will be 
considered a strongly positive factor in determining the amount of a 
whistleblower award, and that a whistleblower's failure to use 
internal whistleblower systems prior to reporting to the SEC will be 
considered a strongly negative factor.'')
---------------------------------------------------------------------------

    Finally, a submission is not contrary to 10A--even where the 21F-
8(c)(4) exception would otherwise apply--where the whistleblower has a 
reasonable basis to believe either of the following: (i) The disclosure 
of the information to the Commission is necessary to prevent the 
relevant entity from committing a material violation of the securities 
laws that is likely to cause substantial injury to the financial 
interest or property of the entity or investors; or (ii) the relevant 
entity is engaging in conduct that will impede an investigation of 
misconduct even if the submission does not contain an allegation of 
audit firm wrongdoing.\315\
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    \315\ We have not adopted the 120-day exclusion set forth in 
Rule 4(b)(4)(vi)(C) because we believe it is unnecessary here. 
Section 10A provides that, if an issuer fails to report to the 
Commission any securities law violations discovered in the course of 
the Section 10A audit, the independent public accounting firm must 
do so. The firm's failure to promptly report the information to the 
Commission constitutes a violation of Section 10A. A whistleblower 
may at any point thereafter report this Section 10A violation to the 
Commission, and thus become eligible for an award based on a covered 
action against the public accountant or the issuer.
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I. Rule 21F-9--Procedures for Submitting Original Information

    Proposed Rule 21F-9 set forth a two-step process for the submission 
of original information. The first step required 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 required the whistleblower to complete a separate 
declaration form, signed under penalty of perjury, in which the 
whistleblower would be required to make certain representations 
concerning the veracity of the information provided and the

[[Page 34337]]

whistleblower's eligibility for a potential award. In response to 
comments, we are adopting a more streamlined process that requires 
submitting only one form signed under penalty of perjury.
a. Proposed Rule
    Paragraph (a) of Proposed Rule 21F-9 required the submission of 
information in one of two ways. A whistleblower could 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.\316\ Proposed Form TCR, and the instructions thereto, were 
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.\317\
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    \316\ The Electronic Data Collection System is the Commission's 
interactive, web-based database for submission of tips, complaints 
and referrals. Both the online database and proposed Form TCR are 
designed to elicit substantially similar information concerning the 
individual submitting the information and the violation alleged. On 
November 9, 2010, we separately submitted a request to the Office of 
Management and Budget for Paperwork Reduction Act approval of the 
Electronic Data Collection System. Accordingly, for purposes of 
these rules, we are only discussing proposed Form TCR.
    \317\ Items A1 through A4 of proposed Form TCR requested the 
whistleblower's personal information, including name, contact 
information and occupation. In instances where a whistleblower 
submitted information anonymously, the identifying information for 
the whistleblower would not be required, but proposed Items B1 
through B4 of the form required the name and contact information of 
the whistleblower's attorney. This information could 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 requested basic identifying information for the 
individual(s) or entit(ies) to which the complaint relates. Proposed 
Items D1 through D9 were designed to elicit details concerning the 
alleged securities violation. The questions posed on proposed Form 
TCR were designed to elicit the minimum information required for the 
Commission to make a preliminary assessment concerning the 
likelihood that the alleged conduct suggested a violation of the 
securities laws. Moreover, the proposed instructions to Form TCR 
were designed to assist the whistleblower and facilitate the 
completion of the form.
---------------------------------------------------------------------------

    In addition to submitting information in the form and manner 
required by paragraph (a), we proposed in paragraph (b) of Proposed 
Rule 21F-9 that whistleblowers who wish to be considered for an award 
in connection with the information they provided to the Commission must 
also complete and provide the Commission with a separate form--proposed 
Form WB-DEC, Declaration Concerning Original Information Provided 
Pursuant to Sec.  21F of the Securities Exchange Act of 1934. Proposed 
Form WB-DEC required a whistleblower to answer certain threshold 
questions concerning the whistleblower's eligibility to receive an 
award. The form also contained 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, 
was true, correct and complete to the best of the whistleblower's 
knowledge, information and belief. Moreover, the statement acknowledged 
the whistleblower's understanding that the whistleblower may be subject 
to prosecution and be 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 made any 
false, fictitious, or fraudulent statements or representations, or used 
any false writing or document knowing that the writing or document 
contained any false, fictitious, or fraudulent statement or entry.
    In instances where information is provided by an anonymous 
whistleblower, paragraph (c) of Proposed Rule 21F-9 required 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. In the proposing 
release, we explained that the proposed certification from counsel was 
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. Additionally, the proposed 
certification process provided a mechanism for anonymous whistleblowers 
to be advised by their counsel regarding their preliminary eligibility 
for an award.\318\
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    \318\ Items A1 through A3 of proposed Form WB-DEC requested the 
whistleblower's name and contact information. In the case of 
submissions by an anonymous whistleblower, the form required the 
name and contact information of the whistleblower's attorney instead 
of the whistleblower's identifying information in proposed Items B1 
through 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 requested information concerning the information submitted by the 
whistleblower to the SEC. Item C1 required the whistleblower to 
indicate the manner in which the information was submitted to the 
Commission. Proposed Item C2 asked for the TCR number assigned to 
the whistleblower's submission. Proposed Items C3 asked 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 asked whether the 
whistleblower has provided the same information being provided to 
the Commission to any other agency or organization and, if so, 
requested 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 required the 
whistleblower to make certain representations concerning the 
whistleblower's eligibility for an award. Finally, the form required 
the sworn declarations from the whistleblower and the 
whistleblower's counsel discussed above.
---------------------------------------------------------------------------

    Finally, Proposed Rule 21F-9(d)(1) stated how whistleblowers who 
provided original information to the Commission in writing after the 
enactment of Dodd-Frank but before the adoption of final rules could 
perfect their status as whistleblowers under the Commission's award 
program. This provision required a whistleblower who provided original 
information to the Commission in a format or manner other than that 
required by paragraph (a) of Proposed 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 
Proposed 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.
b. Comments Received
    Commenters generally were of the view that our proposed procedures 
for submitting information should be streamlined.\319\ Two commenters 
recommended that we adopt a process similar to that of the Internal 
Revenue Service, which requires the submission of only one form.\320\ 
One commenter recommended eliminating the forms altogether and 
requiring only a written submission.\321\ A few commenters urged us to 
retain the flexibility to exercise our discretion to waive technical

[[Page 34338]]

requirements as appropriate in particular circumstances, so as not to 
disqualify otherwise meritorious whistleblower tips on technical 
grounds.\322\
---------------------------------------------------------------------------

    \319\ See, e.g., letters from NWC; Jane Liu; Patrick Burns; 
Alexander Hoover; NCCMP; DC Bar; Georg Merkl; Michael Lawrence.
    \320\ Letter from NCCMP; DC Bar. Two commenters also suggested 
that we adopt the IRS's certification language in IRS Form 211. See 
NCCMP; NWC.
    \321\ Letter from NWC.
    \322\ See, e.g. letters from DC Bar; NWC.
---------------------------------------------------------------------------

    Several commenters recommended that we require proposed Form TCR to 
be signed under penalty of perjury, similar to the requirement for 
proposed Form WB-DEC.\323\ These commenters expressed the view that the 
lapse of time between the filing of proposed Form TCR and the sworn 
Form WB-DEC could cause significant resources to be expended by a 
company in cases where a TCR containing a false or spurious claim is 
immediately investigated by the SEC.\324\ One commenter recommended 
that, to protect against submissions that are not necessarily made in 
bad faith but nevertheless lack merit, the rules should require all 
submissions for which a whistleblower seeks an award to be certified by 
third-party professionals (such as attorneys, accountants and 
individuals with experience in compliance, ombuds and human resources 
functions) who would attest to their good faith, foundation, accuracy 
and relevance.\325\
---------------------------------------------------------------------------

    \323\ Letters from ABA; Goodwin Proctor.
    \324\ Id.
    \325\ Letter from Taft, Stettinius & Hollister, LLP.
---------------------------------------------------------------------------

    A few commenters recommended modifications to the attorney 
certification requirement of Proposed Rule 21F-9(c) relating to 
submissions by anonymous whistleblowers. Two commenters suggested that, 
to ensure that whistleblowers who engage legal counsel do not submit 
claims based on mere speculation or hunches, attorneys handling 
anonymous claims should be required to review the client's information 
and certify that the client can show ``particularized facts suggesting 
a reasonable probability'' that a securities violation has actually 
occurred or is occurring.\326\ By contrast, one commenter opposed the 
attorney certification requirement on grounds that it inappropriately 
shifts to attorneys responsibility for a client's fraudulent 
submission, the nature of which the attorney may be unaware.\327\
---------------------------------------------------------------------------

    \326\ Letters from ABA; Goodwin Procter.
    \327\ See letter from Eric Dixon, LLP.
---------------------------------------------------------------------------

    We received two comments relating to the proposed process for 
perfecting whistleblower status under paragraph (d) of Proposed Rule 
21F-9. One commenter urged us to eliminate the 120-day deadline for 
perfecting whistleblower status.\328\ Another took issue with the 
requirement that original information submitted after the date of 
enactment of the Dodd-Frank Act but before adoption of the final rules 
must be in writing in order to retain the status of original 
information.\329\
---------------------------------------------------------------------------

    \328\ Letter from Georg Merkl.
    \329\ Letter from Storch Amini. We note that this requirement 
emanates from the statute and not from our proposed rules.
---------------------------------------------------------------------------

    In the proposing release, we solicited comment on whether it would 
be appropriate to eliminate the fax and mail options and require that 
all submissions be made electronically. Some commenters expressed the 
view that eliminating fax and mail submission could discourage some 
whistleblowers, such as those with concerns about security and privacy 
\330\ and persons who may be less familiar and comfortable with 
computers.\331\ By contrast, one commenter supported mandating 
electronic submission for environmental and cost reasons.\332\
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    \330\ Letter from Auditing Standards Committee; Institute of 
Independent Auditors.
    \331\ Letter from Georg Merkl.
    \332\ Letter from Continewity LLC.
---------------------------------------------------------------------------

    A number of commenters did not take issue with our proposed process 
but suggested specific modifications to the proposed forms. 
Recommendations included:
     Revising the forms to accommodate joint submissions by 
more than one person.\333\
---------------------------------------------------------------------------

    \333\ Letter from Grohovsky Group. This commenter also was of 
the view that the rules should recognize that there are two distinct 
situations where more than one person might be considered a 
``whistleblower'' with respect to an enforcement action: ``(1) when 
two or more persons make a joint submission, or (2) when two or more 
persons, not acting in concert with each other, make submissions at 
different times that relate to the same enforcement action.'' In the 
latter situation, the commenter suggested that there should be a 
mechanism to encourage those persons to reach an agreement with each 
other so that, at some point, they can proceed jointly.
---------------------------------------------------------------------------

     Adding a checkbox to the current TCR form to effectively 
allow complainants to elect whistleblower status.\334\
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    \334\ Letter from Jane Liu and Michael Lawrence.
---------------------------------------------------------------------------

     Removing the question concerning the whistleblower's 
occupation from the TCR form.\335\
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    \335\ Letter from Auditing Standards Committee.
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     Amending Form WB-DEC to include a question as to whether 
the whistleblower reported the matter to a company's internal 
compliance reporting system.\336\
---------------------------------------------------------------------------

    \336\ See, e.g., letters from SIFMA; ICI; Society of Corporate 
Secretaries.
---------------------------------------------------------------------------

     Revising Item 3 on proposed Form TCR, which asked whether 
the potential whistleblower held any of a list of positions at the 
company, to add ``company counsel'' to the list.\337\
---------------------------------------------------------------------------

    \337\ Letter from Auditing Standards Committee (``Knowing from 
the initial form whether the whistleblower was counsel to a company 
makes sense as a threshold review issue, and could serve as an 
important first indicator to the Commission staff reviewing the form 
that the whistleblower's complaint involved potentially privileged 
information and documents.'')
---------------------------------------------------------------------------

     Adding an item to Proposed Form WB-DEC that requires 
whistleblowers to identify whether and to what extent the information 
they are providing was obtained from any lawyer working for or on 
behalf of the entity that is the subject of the complaint.\338\
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    \338\ Letter from Auditing Standards Committee (a specific 
question ``that could elicit whether counsel was the source of 
information would greatly enhance the staff's ability to identify 
the risk of receiving privileged information and would be an 
appropriate means of balancing the Commission's interest in 
receiving information with the need to protect the privilege * * * 
``Knowing this information would allow the Commission staff to 
quickly and efficiently segregate the report for more detailed 
review and consideration and should present no additional burdens on 
whistleblowers seeking to submit the form * * * It seems appropriate 
to exclude any illegally obtained information, whether domestically 
or abroad.'')
---------------------------------------------------------------------------

     Replacing the phrase ``compliance officers'' in the 
instructions for completing Form TCR with the phrase ``compliance 
professionals'' to make clear that the question is intended to capture 
others performing compliance-related functions in companies.\339\
---------------------------------------------------------------------------

    \339\ Letter from Murphy.
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    Finally, several commenters advanced what may be characterized as 
policy-type recommendations for operation of the whistleblower 
program.\340\ Although these comments do not require specific changes 
to the proposed rules, we have considered them and anticipate that, 
where appropriate, we will incorporate some of the suggestions in 
implementing policies and procedures for our whistleblower program.
---------------------------------------------------------------------------

    \340\ See, e.g., Georg Merkl (rules should require staff to 
inform potential whistleblowers who submit information that they may 
be eligible for an award and provide them with information about the 
program); Harold Burke (Commission should assign case officers to 
all filed matters, require staff to provide annual updates to 
whistleblowers and require at least one face-to-face meeting with a 
whistleblower); Wanda Bond (Commission should provide date and time-
stamped receipt of information received from whistleblowers and 
establish mechanism by which whistleblowers can check the status of 
their claims).
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we have adopted a more streamlined 
process for submission of information that eliminates the requirement 
of a separate Form WB-DEC and requires the submission of only one 
form--Form TCR--signed under penalty of perjury. Form TCR essentially 
combines the key questions posed in Proposed Form TCR and Proposed Form 
WB-DEC into a single form. By consolidating the two forms, we have 
simplified the process

[[Page 34339]]

by eliminating the burden on whistleblowers of having to file a second 
form and eliminating some duplicative questions that appeared on both 
proposed forms. Rule 21F-9(b) provides that, to be eligible for an 
award, a whistleblower at the time he submits his TCR must declare 
under penalty of perjury that the information he is providing is true 
and correct to the best of his knowledge and belief.
    In response to comments, we also made several modifications to Form 
TCR. Specifically, we revised Form TCR to allow for joint submissions 
by more than one whistleblower. This comports with the intent of 
Section 21F, which defines ``whistleblower'' as ``any individual, or 2 
or more individuals acting jointly, who provides information relating 
to a violation of the securities laws to the Commission * * *''
    In addition, to address commenters' concerns regarding the receipt 
by the Commission of potentially privileged information, we added 
``counsel'' to the list of positions held by a whistleblower, and 
amended Item 8 on Proposed Form TCR (renumbered as item 10 in the form 
as adopted), which asks the whistleblower to describe how he or she 
obtained the information that supports the claim, to identify with 
particularity any information submitted by the whistleblower that was 
obtained from an attorney or in a communication where an attorney was 
present. As explained in our proposing release, the attorney-client 
privilege 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 
communication. In our view, a specific question that could elicit 
whether counsel was the source of information would enhance the staff's 
ability to identify the risk of receiving privileged information and 
would be an appropriate means of balancing the Commission's interest in 
receiving information with the policy goal of protecting the privilege. 
In addition, knowing this information would allow the staff to quickly 
segregate the information for more detailed review and consideration.
    As discussed elsewhere, several provisions in our rules encourage, 
but do not require, whistleblowers to utilize their companies' internal 
compliance and reporting systems when appropriate. In response to 
comments urging us to include a question on our form asking whether the 
whistleblower reported the matter to a company's internal compliance 
program, and to address those instances in which a whistleblower 
chooses to report the violation internally, we amended questions 4a and 
4b of proposed Form TCR, which asked the whistleblower to provide 
details about any prior action taken regarding the complaint, to 
specifically state whether the whistleblower reported the violation to 
his or her supervisor, compliance office, whistleblower hotline, 
ombudsman, or any other available mechanism at the entity for reporting 
violations. This language borrows from the instructions to question 4a 
on Proposed Form TCR.
    Finally, we added an optional question to Form TCR to enable the 
whistleblower to identify any particular documents or other information 
in the submission that the whistleblower believes could reasonably be 
expected to reveal his or her identity. The purposes of this question 
is to afford whistleblowers who wish to remain anonymous the 
opportunity to guard documents or information which, if shown to a 
third party, may reasonably be expected to reveal their identity. It 
would also assist the investigative staff utilizing the information in 
making this determination.\341\
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    \341\ The Commission will reach its own conclusion about whether 
the information that the whistleblower identifies in fact could be 
reasonably expected to reveal the whistleblower's identity, but we 
believe this analysis could be significantly aided by a 
whistleblower's identification of documents that he or she believes 
might reasonably reveal his or her identity.
---------------------------------------------------------------------------

    As to the submission of Form TCR, we agree with commenters' 
suggestion that we should require submissions of information made 
pursuant to our whistleblower program to be made under penalty of 
perjury, and accordingly, are requiring that the form be accompanied by 
sworn certifications by the whistleblower and counsel. We are not 
adopting the recommendation that all whistleblower submissions be 
certified by third party professionals because we think that the 
requirement is inconsistent with our user-friendly mandate and would 
unnecessarily add to a whistleblower's financial burden of submitting a 
tip to the Commission. Moreover, in our view, the requirement of a 
certification by the whistleblower or, in case of anonymous submission, 
the whistleblower's counsel, is sufficient to deter false or meritless 
submissions.
    In response to comments that the counsel certification places an 
undue burden on counsel for anonymous whistleblowers, we have amended 
the counsel certification provision to include the phrase ``true, 
correct and complete to the best of [counsel's] knowledge, information 
and belief.'' The addition of this phrase makes clear that we will not 
hold attorneys accountable if they possess a good-faith belief that the 
information they are submitting on behalf of the whistleblower is true, 
correct and complete. The addition of this phrase also achieves 
consistency with the whistleblower's certification, which contained 
this language.
    Form TCR as adopted also includes in the counsel certification a 
representation by the attorney representing an anonymous whistleblower 
that the attorney has ``obtained the whistleblower's non-waiveable 
consent to provide the Commission with his or her original signed Form 
TCR upon request in the event that the Commission requests it ``due to 
concerns that the whistleblower may have knowingly and willfully made 
false, fictitious, or fraudulent statements or representations, or used 
any false writing or document knowing that the writing or document 
contains any false fictitious or fraudulent statement or entry.'' 
Moreover, the certification reflects the attorney's consent to be 
legally obligated to do so within 7 calendar days of receiving such a 
request from the Commission. We believe that this modification to the 
attorney certification is necessary to effectuate the ``penalty of 
perjury'' provision in the whistleblower's declaration, and to enable 
the Commission to enforce the provision in appropriate cases.
    Although some commenters recommended that we require attorneys to 
certify that the client can show ``particularized facts suggesting a 
reasonable probability'' that a securities violation has actually 
occurred or is occurring, we have decided not to adopt this standard. 
In our view, requiring attorneys to verify the form for completeness 
and accuracy and certify that the information is true, correct and 
complete to the best of the attorney's knowledge, information and 
belief is sufficient to discourage frivolous submissions to the 
Commission. We further believe that a higher standard that might 
require a ``reasonable probability'' that a securities violation 
actually has occurred or is occurring is unnecessary in light of an 
attorney's already existing ethical obligations in dealing with the 
Commission.
    With regard to other comments relating to the process for 
submitting information and our proposed forms, we have decided to keep 
the fax and mail submissions as options to ensure that whistleblowers 
who do not have access to a computer or who may be averse to electronic 
transmissions have an alternative means of submitting

[[Page 34340]]

information to us. In addition, we made the response to item A4 of Form 
TCR, which asked for the whistleblower's occupation, optional.
    In response to comments that we should eliminate the form 
requirement so as not to disqualify whistleblowers on technical 
grounds, we note that we address such instances elsewhere in our rules. 
Specifically, Rule 21F-8(a) retains the Commission's discretion to 
waive the procedural requirements of the rules upon a showing of 
extraordinary circumstances.
A. Procedure for Submitting Original Information
    As adopted, paragraph (a) of Rule 21F-9 requires whistleblowers to 
submit their information in one of two ways: (1) Through the 
Commission's Web-based, interactive database for the submission of 
tips, complaints and referrals; or (2) by completing Form TCR (Tip, 
Complaint or Referral) and mailing or faxing the form to the SEC Office 
of the Whistleblower, 100 F Street NE., Washington, DC 20549-5631, Fax 
(703) 813-9322. Paragraph (b) provides that, to be eligible for an 
award, a whistleblower must submit his or her original information 
under penalty of perjury.
    In instances where information is provided by an anonymous 
whistleblower, paragraph (c) of Rule 21F-9 provides that the attorney 
for the whistleblower must submit the information on the 
whistleblower's behalf pursuant to paragraph (a). In addition, the 
attorney must retain a copy of the submission, signed by the 
whistleblower under penalty of perjury, and must sign the counsel 
certification discussed above.
    In response to commenters' general suggestion that we make the 
application process more user friendly, we have eliminated the proposed 
requirement that whistleblowers who made their submission after the 
date of enactment of Dodd-Frank but before the effective date of these 
rules must perfect their whistleblower status by re-submitting their 
information in the format required by these rules. We agree that it 
would be unnecessarily burdensome to require these whistleblowers to 
make a duplicative submission to us. To the extent that there is 
additional information that the TCR form might otherwise solicit and 
which we might desire prior to the award application phase, the staff 
can contact these whistleblowers (or their counsel if applicable) to 
obtain that information. For those whistleblowers who submitted their 
information anonymously during this period, however, we are requiring 
them to provide their attorney with a completed and signed copy of Form 
TCR within 60 days of the effective date of these rules. This is 
generally consistent with our proposed rule, and we believe that it is 
necessary and appropriate because, unlike whistleblowers whose identity 
we are aware of, we are more constrained in our ability to confirm an 
anonymous whistleblower's information and eligibility. We believe that 
requiring whistleblowers to provide their attorney within 60 days the 
signed declaration from the Form TCR may help ensure earlier in the 
process that these whistleblowers are eligible for an award and have 
provided truthful information to us.
    Thus, as adopted, paragraph (d) provides that, if a whistleblower 
submitted original information in writing to the Commission after July 
21, 2010 (the date of enactment of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act) but before the effective date of these 
rules, the whistleblower's submission will be deemed to satisfy the 
requirements set forth in paragraphs (a) and (b). However, if the 
whistleblower submitted the information anonymously, paragraph (d) 
requires the whistleblower to provide his or her attorney with a 
completed and signed copy of Form TCR within 60 days of the effective 
date of these rules. In addition, the attorney must retain the signed 
form in his or her records, and the whistleblower must provide a copy 
of the signed form to the Commission staff upon request by Commission 
staff prior to any payment of an award to the whistleblower in 
connection with the submission. Notwithstanding the foregoing, 
paragraph (d) provides that the whistleblower must follow the 
procedures and conditions for making a claim for a whistleblower award 
described in Rules 21F-10 and F-11.
B. Form TCR
    As adopted, items A1 through A3 of Form TCR request name and 
contact information for each whistleblower submitting the information. 
In instances where a whistleblower submits information anonymously, the 
identifying information for the whistleblower is not required, but 
items B1 through B4 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. Items C1 through C4 request basic 
identifying information for the individual(s) or entit(ies) to which 
the complaint relates. Items D1 through D12 are designed to elicit 
details concerning the alleged securities violation. Items D1 and D2 
ask the whistleblower to provide the date of the occurrence and 
describe the nature of the complaint. Items D3 and D4 correspond to the 
same-numbered items on former Proposed Form WB-DEC. Items 3a and 3b ask 
whether the complainant or their counsel had any prior communications 
with the SEC concerning the matter and, if so, the name or the person 
with whom they communicated. Items 4a through 4c ask whether the 
whistleblower has provided the same information to any other agency or 
organization, or whether any other agency or organization has requested 
the information from the whistleblower and, if so, to provide details, 
including the name and contact information for the point of contact at 
the other agency or organization, if known.
    Item 5a of Section D asks whether the complaint relates to an 
entity of which the whistleblower is or was an officer, director, 
counsel, employee, consultant or contractor. Items 5b through 5d ask 
whether the whistleblower has reported the violation to his or her 
supervisor, compliance office, whistleblower hotline, ombudsman, or any 
other available mechanism at the entity for reporting violations.
    Items 6a and 6b ask whether the whistleblower took any other action 
regarding the complaint and request details regarding any such action. 
Although our rules do not mandate internal reporting prior to providing 
information to the SEC, this question is designed to address instances 
in which a whistleblower chooses to report the violation to his or her 
company first and will afford such whistleblowers the opportunity to 
provide the Commission with any additional relevant details relating to 
their internal reporting.
    Item D7 asks about the type of security or investment involved, the 
name of the issuer and the ticker symbol or CUSIP number, if 
applicable. Item D8 asks the whistleblower to state in detail all facts 
pertinent to the alleged violation and to explain his or her belief 
that the acts described constitute a violation of the Federal 
securities laws. Item D9 asks 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 D10 asks for an explanation of how and 
from whom the whistleblower obtained the information that supports the 
claim. In addition, the whistleblower is asked to identify any 
information that was

[[Page 34341]]

obtained from an attorney or in a communication where an attorney was 
present. Item D11 asks the whistleblower to identify any particular 
documents or other information in their submission that they believe 
could reasonably be expected to reveal their identity, and requests the 
whistleblower to explain the basis for his or her belief that his or 
her identity would be revealed if the documents were disclosed to a 
third party. Item D12 provides the whistleblower with an opportunity to 
furnish any additional information the whistleblower thinks may be 
relevant to his submission.
    Section E of Form TCR corresponds to Section D on Proposed Form WB-
DEC. Items E1 through E9 require the whistleblower to make certain 
representations concerning the whistleblower's eligibility for an 
award.\342\
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    \342\ Item E1 asks the whistleblower to state whether he or she 
is currently, or was at the time the whistleblower acquired the 
original information that is being submitted to the SEC, a member, 
officer, or employee of the Department of Justice; the Securities 
and Exchange Commission; the Comptroller of the Currency, the Board 
of Governors of the Federal Reserve System, the Federal Deposit 
Insurance Corporation, the Office of Thrift Supervision; the Public 
Company Accounting Oversight Board; any law enforcement 
organization; or any national securities exchange, registered 
securities association, registered clearing agency, or the Municipal 
Securities Rulemaking Board. Item 2 asks the whistleblower to state 
whether he or she is, or was at the time the whistleblower acquired 
the original information being submitted to the SEC, a member, 
officer or employee of a foreign government, any political 
subdivision, department, agency, or instrumentality of a foreign 
government, or any other foreign financial regulatory authority as 
that term is defined in Section 3(a)(52) of the Securities Exchange 
Act of 1934. Item 3 asks if the whistleblower acquired the 
information through the performance of an engagement required under 
the securities laws by an independent public accountant. Item 4 asks 
whether the whistleblower is providing the information pursuant to a 
cooperation agreement with the SEC or with any other agency or 
organization. In item 5, we ask the whistleblower to state whether 
he or she is a spouse, parent, child or sibling of a member or 
employee of the SEC, or whether the whistleblower resides in the 
same household as a member or employee of the SEC. Item 6 asks 
whether the whistleblower is providing the information before the 
whistleblower (or anyone representing the whistleblower) received 
any request, inquiry or demand that relates to the subject matter of 
the submission (i) From the SEC, (ii) in connection with an 
investigation, inspection or examination by the PCAOB, or any SRO; 
or (iii) in connection with an investigation by the Congress, any 
other authority of the Federal government, or a state Attorney 
General or securities regulatory authority. In item 7, we ask 
whether the whistleblower is the subject or target of a criminal 
investigation or has been convicted of a criminal violation in 
connection with the information being submitted to the SEC and 
request details concerning any such investigation or conviction. 
Item 8 asks whether the whistleblower acquired the information being 
submitted to the Commission from any person described in Item E1 
through E6. Item 9 requests additional details concerning the 
whistleblower's responses to items 1 through 8.
---------------------------------------------------------------------------

    In Section F, the whistleblower is required to declare under 
penalty of perjury under the laws of the United States that the 
information contained in the form is true, correct and complete to the 
best of the whistleblower's knowledge, information and belief. In 
addition, the whistleblower acknowledges his understanding that he may 
be subject to prosecution and ineligible for a whistleblower award if, 
in his submission of information, his other dealings with the SEC, or 
his 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 Section G requires an attorney for an 
anonymous whistleblower to certify that the attorney reviewed the form 
for completeness and accuracy and that the attorney has verified the 
identity of the whistleblower on whose behalf the form is being 
submitted by viewing the complainant's valid, unexpired government 
issued identification (e.g., driver's license, passport). In addition, 
the attorney must certify that he or she will retain an original, 
signed copy of the form, with Section F signed by the whistleblower, in 
his or her records. Finally, the attorney must indicate that the 
attorney has obtained the whistleblower's non-waiveable consent to 
provide the Commission with his or her original signed Form TCR upon 
request in the event that the Commission requests it due to concerns 
that the whistleblower may have knowingly and willfully made false, 
fictitious, or fraudulent statements or representations, or used any 
false writing or document knowing that the writing or document contains 
any false fictitious or fraudulent statement or entry. The 
certification also reflects the attorney's consent to be legally 
obligated to do so within 7 calendar days of receiving such a request 
from the Commission.

J. Rule 21F-10--Procedures for Making a Claim Based on a Successful 
Commission Action

a. Proposed Rule
    In Proposed Rule 21F-10, we described the procedures that a 
whistleblower would be required to follow in order to make a claim for 
an award based on a Commission action, and the Commission's proposed 
claims review 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 Office of the Whistleblower would 
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 would 
require 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 from later 
seeking a recovery.
    Paragraph (b) of Proposed Rule 21F-10 described 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 Sec.  21F of the 
Securities Exchange Act of 1934. Proposed Form WB-APP, and the 
instructions thereto, would 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 required the claimant 
to provide basic identifying information, including first and last name 
and contact information. Proposed Items B1 through B4 requested the 
name and contact information for the whistleblower's attorney, if 
applicable. Proposed Items C1 and C2 requested 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

[[Page 34342]]

requested 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 requested information concerning related 
actions. A whistleblower would be required to complete Section E 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 required 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 contained 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 provided that a claim on Form 
WB-APP, including any attachments, must be received by the Office of 
the Whistleblower within sixty (60) days of the date of the Notice of 
Covered Action in order to be considered for an award.
    Paragraph (c) required 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 Office of the Whistleblower 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 described 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 Office of the Whistleblower 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 
Office of the Whistleblower 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 Office of the 
Whistleblower 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 Office of the 
Whistleblower make available for the claimant's review the materials 
that formed the basis of the Claims Review Staff's Preliminary 
Determination.
     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 Office of the 
Whistleblower making those materials available for the claimant's 
review, a claimant may submit a written response to the Office of the 
Whistleblower 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 Office of 
the Whistleblower. However, such meetings are not required and the 
Office of the Whistleblower may in its sole discretion decline the 
request.
    Paragraph (f) of Proposed Rule 21F-10 made 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 would 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 described 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 Office of 
the Whistleblower 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 requested 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 requested 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 Office of the Whistleblower. 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.
b. Comments Received
    We received a number of comments suggesting that the claims process 
be simplified, streamlined, or made less formal. Several commenters 
criticized the initial requirement that a whistleblower submit an award 
application within 60 days of a Notice of Covered Action.\343\ These 
commenters generally stated that this requirement could be eliminated 
if the Office of the Whistleblower were required to contact 
whistleblowers directly to inform them that a covered action has been 
successfully litigated and contended that the proposal places an undue 
burden on whistleblowers to monitor the SEC Web site to learn of

[[Page 34343]]

their potential eligibility for an award.\344\
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    \343\ See, e.g., letters from VOICES; Grohovsky Group; NWC; 
Wanda Bond; False Claims Act Legal Ctr.
    \344\ See letters from VOICES; Grohovsky Group; False Claims Act 
Legal Center.
---------------------------------------------------------------------------

    A few commenters stated that claims resolution process should be 
less formal and more focused on reaching a negotiated settlement. One 
such comment asserted that the procedures for determining awards seemed 
``overly formalistic,'' noting that negotiation has been highly 
effective in resolving issues in qui tam cases under the False Claims 
Act.\345\ Another commenter recommended that a settlement process be 
built into the claims resolution process.\346\
---------------------------------------------------------------------------

    \345\ See letter from Grohovsky Group.
    \346\ See letter from NWC.
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    Finally, several commenters suggested additional procedures or 
guidance that we could employ to assist whistleblowers with the claims 
process. One commenter recommended that the application form should be 
simplified.\347\ Another commenter recommended that we send 
whistleblowers a checklist of any further requirements once the 
whistleblower submits information, including how and where the 
whistleblower can find the `Notice of Covered Action' on the SEC's Web 
site and a contact for any further questions.\348\ This commenter also 
recommended that we provide a method for whistleblowers to check on the 
progress of the claims process.\349\
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    \347\ See letter from NWC (recommending that a whistleblower 
should submit a ``simplified form, consistent with the form 
recommended by the Inspector General,'' rather than the proposed WB-
APP).
    \348\ See letter from Wanda Bond.
    \349\ See letter from Wanda Bond.
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c. Final Rule
    After reviewing the comments, we are adopting the rule with several 
modifications.
    We have decided not to eliminate the Notice of Covered Action or to 
otherwise model the procedures after those employed in the qui tam 
context. The qui tam context is substantially different from our 
situation because qui tam actions necessarily will involve one or more 
known relators with whom the Department of Justice will have worked. By 
contrast, in enforcement actions that we institute and litigate (based 
in part on information and assistance from one or more whistleblowers), 
there may be one whistleblower with whom we have worked closely, but 
other claimants who have a potential basis for award eligibility as 
well. Our procedures must provide due process to all potential 
claimants and accordingly cannot be tailored only to those claimants 
with whom the staff has worked closely. For that reason, we believe the 
``Notice of Covered Action'' procedure provides the best mechanism to 
provide notice to all whistleblower claimants who may have contributed 
to the action's success. Nevertheless, we anticipate that the Office of 
the Whistleblower's standard practice will be to provide actual notice 
to whistleblowers with whom the staff has worked closely. We also 
believe the application form, preliminary determination, opportunity 
for response, and final determination together should operate to ensure 
that all potential claimants have a fair opportunity to pursue an award 
claim. A more informal process modeled after the qui tam procedures 
might favor those whistleblowers who have worked closely with our staff 
and might not provide a full and fair opportunity for claims by others 
who nonetheless may have provided original information that led to the 
successful covered action.\350\
---------------------------------------------------------------------------

    \350\ In addition, in those situations where the Claims Review 
Staff determines that it may be appropriate, the rule provides the 
Office of the Whistleblower with a mechanism to engage in 
discussions with known whistleblowers. Indeed, paragraph (e)(1)(ii) 
provides claimants with an opportunity to request a meeting with the 
Office of the Whistleblower following a Preliminary Determination. 
The Office of the Whistleblower could use these meetings in 
appropriate cases as an opportunity to reach a tentative agreement 
with a meritorious whistleblower on the terms of a Proposed Final 
Determination, which could then be presented to the Commission for 
approval.
---------------------------------------------------------------------------

    Nonetheless, to respond to some of the concerns raised by 
commenters and to make the process more accessible to whistleblowers, 
we have made several modifications in the final rule. First, we have 
decided to increase the period for claimants to file their claim for an 
award from sixty (60) days to ninety (90) days. This additional time 
should provide claimants with a better opportunity to review the 
Commission's Web site and file an application following the publication 
of a Notice. In our view, this 90-day period strikes an appropriate 
balance between competing whistleblower interests--allowing all 
potential whistleblowers a reasonable opportunity to periodically 
review the Commission's Web site and to file an application, on the one 
hand, but providing finality to the application period so that the 
Commission can begin the process of assessing any applications and 
making a timely award to any qualifying whistleblowers, on the other 
hand.\351\
---------------------------------------------------------------------------

    \351\ Two commenters asserted that there is no support in the 
statute for a rule barring a whistleblower from obtaining an award 
if he fails to file a timely claim after the 60-day notice. See 
letter from VOICES. See also letter from False Claims Act Legal 
Center. We disagree. The statutory authority to adopt rules 
necessary or appropriate to implement the awards program, which is 
contained in Section 21F(j), plainly permits the Commission to 
establish procedures for submitting information and making claims 
for awards. See also Section 21F(b)(1) (providing for payments 
``under regulations promulgated by the Commission''). The 90-day bar 
provides finality at the end of a reasonable application period so 
that we may assess the award applications and conclusively determine 
which applicant, if any, is entitled to an award, and in what 
percentage amount.
---------------------------------------------------------------------------

    Second, in light of comments that we simplify the WB-APP form, we 
have made Section G of the form optional. As commenters stated, when a 
whistleblower has worked closely with the staff on a matter, requiring 
that whistleblower to furnish a submission explaining the degree and 
value of his or her assistance may well be unnecessary. At the same 
time, such a whistleblower--or other claimants who have not worked as 
closely with the staff and wish to advocate the value of their 
assistance--should have the opportunity to do so. We have determined 
not to make any further modifications to the form, however, because the 
remaining information that we request is in our view necessary so that 
we have a sufficient record to consider the claimant's application 
(and, if a petition for review is filed, so that the court of appeals 
has a sufficient record to conduct a review).
    Third, in paragraph (d), we have provided the Director of 
Enforcement with express authority to designate the staff members to 
serve on the Claims Review Staff. The Director of Enforcement may 
designate staff from the Enforcement Division, the Office of the 
Whistleblower, or other Commission divisions or offices to serve on the 
Claims Review Staff, either on a case-by-case basis or for fixed 
periods, as the Director deems appropriate.
    Fourth, in paragraph (e), we have clarified that any response a 
claimant files to a Preliminary Determination must be in a form and 
manner that the Office of the Whistleblower shall require. Fifth, in 
paragraph (e)(1)(i), we have added a reference to new Rule 21F-12, 
clarifying that a claimant can request that the Office of the 
Whistleblower make available for his or her review the materials from 
among those set forth in Rule 21F-12 that the Claims Review Staff used 
as the basis for its Preliminary Determination.\352\
---------------------------------------------------------------------------

    \352\ We have also revised final rule 21F-10 (and made a 
corresponding revision in final rule 21F-11) to provide that the 
Final Order of the Commission will be provided to a claimant by the 
Office of the Whistleblower instead of the SEC Office of the 
Secretary (although the Office of the Secretary will continue to 
issue the Order). We have done so to reflect the fact that the 
Office of the Whistleblower is the appropriate Commission liaison 
with whistleblower claimants.

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[[Page 34344]]

    The following chart represents a general overview of the process 
that we are adopting:
BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TR13JN11.000

BILLING CODE 8011-01-C

K. Rule 21F-11--Procedure for Making a Claim Based on a Successful 
Related Action

a. Proposed Rule
    Proposed Rule 21F-11 set forth the procedures for determining 
awards based upon related actions. Paragraph (a) of Proposed Rule 21F-
11 informed 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 described the procedures for 
making a claim for an award in a related action. The process 
essentially mirrored the procedure for making a claim in connection 
with a Commission action

[[Page 34345]]

and would require 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 requested 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 set 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 proposed rule provided that the Office of the Whistleblower 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 Office 
of the Whistleblower 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 described the 
Commission's claims review process in related actions. The Commission 
proposed to utilize the same claims review process in related actions 
that it would utilize in connection with claims submitted in connection 
with a covered Commission action.
b. Comments Received
    The Commission did not receive any comments directed specifically 
to this proposed rule. Nonetheless, several of the comments on Rule 
21F-10--those recommending that we employ certain additional procedures 
or guidance to assist whistleblowers with the claims process--are also 
relevant to Rule 21F-11.
c. Final Rule
    We are adopting Rule 21F-11 with several modifications, which 
parallel certain of the changes we made to Rule 21F-10.
    First, in paragraph (b)(2), we have extended to ninety (90) days 
the period that a whistleblower has to file a claim following the entry 
of a final order imposing monetary sanctions in a related action where 
the entry of the final order occurs after the whistleblower has 
submitted a claim for an award in the Commission's covered action. This 
gives whistleblowers a longer time in which to file a claim, reducing 
the likelihood that a meritorious whistleblower would miss the filing 
deadline. Second, in paragraph (e), we have clarified that any response 
a claimant files to a Preliminary Determination must be in a form and 
manner that the Office of the Whistleblower shall require. Third, in 
paragraph (e)(1)(i), we have added a reference to new Rule 21F-12, 
clarifying that a claimant can request that the Office of the 
Whistleblower make available for his or her review the materials from 
among those set forth in Rule 21F-12 that the Claims Review Staff used 
as the basis for its Preliminary Determination.
    The following chart represents a general overview of the process 
that we are adopting:

[[Page 34346]]

[GRAPHIC] [TIFF OMITTED] TR13JN11.001

L. Rules 21F-12 & 13--Materials That May Be Used as the Basis for an 
Award Determination and That May Comprise the Record on Appeal; Right 
of Appeal

a. Proposed Rule
    In Proposed Rule 21F-12, we described claimants' appeal rights and 
designated the materials that could comprise the record on appeal.
    We intended paragraph (a) of the proposed rule to track Section 
21F(f) of the Exchange Act, which provides for certain rights of appeal 
of Commission orders with respect to whistleblower awards. Under 
Section 21F, a decision of the Commission regarding the amount of an 
award would not be appealable when the Commission has followed the 
statutory mandate to award between 10 and 30 percent of the monetary 
sanctions collected after taking into consideration the criteria 
established under Section 21F(c)(1)(B) of the Act. A decision regarding 
whether or to whom to make an award could 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 could 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 the proposed rule designated the materials that 
comprise the record on appeal. These included the Claims Review Staff'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.
    Other than the materials identified for inclusion in the record on 
appeal, the proposed rule provided the Claims Review Staff and the 
Commission with discretion on a case-by-case basis to determine the 
materials that could be relied upon to form the award 
determination.\353\
---------------------------------------------------------------------------

    \353\ See, e.g., Proposed Rule 21F-10(e)(1)(i); Proposed Rule 
21F-11(e)(1)(i).
---------------------------------------------------------------------------

b. Comments Received
    We received only a few comments on this proposal. One commenter 
stated that the proposed rule unduly restricted the whistleblower's 
appeals rights by foreclosing judicial review of the Commission's 
determination of the amount of the award and claims of abuse of 
discretion in applying the statutory criteria set forth in Dodd-Frank 
922(f).\354\ Another commenter recommended that the rule should include 
a provision to permit a whistleblower who is wrongfully denied a reward 
to obtain, as a matter of course, attorney's fees under the Equal 
Access to Justice Act if the claimant prevails on

[[Page 34347]]

appeal.\355\ A third commenter criticized our proposal to the extent 
that it would not make available internal deliberative process 
materials that are prepared exclusively to assist the Commission in 
deciding the claim.\356\
---------------------------------------------------------------------------

    \354\ See letter from False Claims Act Legal Center (citing 
Senate Report No. 111-176, at 112 (April 30, 2010)).
    \355\ See letter from NWC.
    \356\ See letter from Eric Dixon.
---------------------------------------------------------------------------

c. Final Rule
    After reviewing the comments, we are adopting a new Rule 21F-12 
that specifies the material that may form the record of the 
Commission's award determination, and rule 21F-13, concerning appeals, 
which substantially follows proposed rule 21F-12.
    Rule 21F-12(a) specifies the materials that we may rely upon to 
form the basis for an award determination. We believe that specifying 
the materials that we may rely upon will promote transparency and 
consistency in the claims review process.
    Under Rule 21F-12(a), the Commission and staff may rely on the 
following items:
     Any publicly available materials from the covered action 
or related action, including (i) the complaint, notice of hearing, 
answers and any amendments thereto; (ii) the final judgment, consent 
order, or final administrative order; (iii) any transcripts of the 
proceedings, including any exhibits; (iv) any items that appear on the 
docket; and (v) any appellate decisions or orders.
     The whistleblower's Form TCR, including attachments, and 
other related materials provided by the whistleblower to assist the 
Commission with the investigation or examination.
     The whistleblower's Form WB-APP, including attachments, 
and any other filings or submissions from the whistleblower in support 
of the award application.
     Sworn declarations (including attachments) from the 
Commission's staff regarding any matters relevant to the award 
determination.
     With respect to an award claim involving a related action 
by another entity, any statements or other information that the entity 
provides or identifies in connection with an award determination. 
However, we will not consider any materials if the entity that provided 
them has not authorized us to share the information with the claimant, 
because we do not believe it would be fair or appropriate to rely upon 
information that may not be made available to the claimant.\357\
---------------------------------------------------------------------------

    \357\ For instance, if a state Attorney General should provide 
us with information to assist us in processing a whistleblower 
claim, but should expressly tell us that the information is highly 
sensitive and may not be shared with the whistleblower because it 
might jeopardize on-going criminal law enforcement investigations, 
we will not rely on the particular information in processing the 
whistleblower's claim because we cannot also share the information 
with the claimant.
---------------------------------------------------------------------------

     Any other documents or materials including sworn 
declarations from third-parties that are received or obtained by the 
Office of the Whistleblower to assist us in resolving the claimant's 
award application, including information related to the claimant's 
eligibility (provided that we are also permitted to share it with the 
claimant).\358\
---------------------------------------------------------------------------

    \358\ For instance, if a third party should voluntarily provide 
us with information related to a whistleblower's claim, but 
expressly request that we not disclose the information to the 
claimant for fear the claimant would realize the third-party had 
been the source, we will not rely on the particular information 
because we cannot also share it with the claimant.
---------------------------------------------------------------------------

    Rule 21F-12(b) provides that a claimant is not entitled to obtain 
any materials beyond those that form the basis of an award 
determination, including ``pre-decisional or internal deliberative 
process materials that are prepared exclusively to assist the 
Commission in deciding the claim.'' The proposed rules did not provide 
claimants with an opportunity to review materials that we did not rely 
upon to form the basis for an award determination, and Rule 21F-12(b) 
simply clarifies that claimants are not entitled to obtain these 
materials.\359\
---------------------------------------------------------------------------

    \359\ See, e.g., Proposed Rule 21F-10(e)(1)(i); Proposed Rule 
21F-11(e)(1)(i). See also Proposed Rule 21F-12(b).
---------------------------------------------------------------------------

    In Proposed Rule 21F-12(b) (which is now Final Rule 21F-13(b)), we 
provided that a claimant is not entitled to include pre-decisional 
material in the record on appeal, and we are now further clarifying in 
Rule 21F-12(b) that a claimant is not entitled to receive those 
materials from the Commission. We do not agree with the suggestion that 
internal deliberative process materials that are prepared exclusively 
to assist the Commission's decisional process should be included within 
the record on appeal. These materials are by their nature pre-
decisional work product that may often contain the staff's ``frank 
discussion of legal and policy making materials,'' \360\ and the 
disclosure of these materials would have a chilling effect on our 
decision-making process.\361\
---------------------------------------------------------------------------

    \360\ See, e.g., NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 151 
(1975); see also United States v. Farley, 11 F.3d 1385, 1389 (7th 
Cir. 1993) (``[F]rank discussion of legal and policy matters is 
essential to the decision-making process of a governmental 
agency.''); Town of Norfolk v. U.S. Army Corps of Eng'rs, 968 F.2d 
1438, 1458 (1st Cir. 1992).
    \361\ See generally Dep't of Interior v. Klamath Water Users 
Protective Ass'n, 532 U.S. 1, 8-9 (2001) (stating that the 
``deliberative process privilege rests on the obvious realization 
that officials will not communicate candidly among themselves if 
each remark is a potential item of discovery and front page news'').
---------------------------------------------------------------------------

    Rule 21F-12(b) also consolidates provisions from Proposed Rules 
21F-10(e)(1)(i) and 21F-11(e)(1)(i) that provide that the Office of the 
Whistleblower may: (1) make redactions as necessary to comply with any 
statutory restrictions, to protect the Commission's law enforcement and 
regulatory functions, and to comply with requests for confidential 
treatment from other law enforcement and regulatory authorities; and 
(2) require a claimant to sign a confidentiality agreement before 
providing these materials.
    We are adopting Rule 21F-13(a)--which substantially tracks Proposed 
Rule 21F-12(a)--to clarify that when the Commission makes an award 
between 10 and 30 percent, and that determination is based on the 
factors set forth in Rule 21F-6, our final order regarding the amount 
of an award (including the award allocation among multiple 
whistleblowers) is not appealable. The proposing rule had not expressly 
stated that the award determination must be based on a consideration of 
the factors in Rule 21F-6, but we believe this clarification ensures 
that the rule is consistent with Section 21F(f) of the Exchange Act. We 
have further clarified that, consistent with Section 21F(f), ``any 
factual findings, legal conclusions, policy judgments, or discretionary 
assessments'' that we make in considering the Rule 21F-6 factors are 
not appealable.\362\
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    \362\ Although one commenter cited to legislative history to 
contend that we are unduly restricting the scope of appeals under 
Section 21F(f), the legislative history identified in fact refers to 
an earlier draft of the bill that became the Dodd-Frank Act. That 
provision was subsequently changed before it was incorporated into 
the Dodd-Frank Act so that it expressly precluded appeal of an award 
amount where the Commission considered the relevant factors in 
assessing the award. See 156 Cong. Rec. S5929 (daily ed. July 15, 
2010) (statement of Sen. Dodd) (``amended to eliminate the right of 
a whistleblower to appeal the amount of an award.'') Indeed, the 
relevant provision of the earlier draft of the bill did not, unlike 
Section 21F(f), include language that expressly excluded from the 
scope of appeal ``the determination of the amount of an award if the 
award was based on a consideration of the'' awards factors.
---------------------------------------------------------------------------

    We are adopting Rule 21F-13(b)--which substantially tracks Proposed 
Rule 21F-12(b); however, we have modified the proposed language to 
clarify that the record on appeal shall consist of the Preliminary 
Determination, the Final Order of the Commission, and any other items 
from among those set forth in Rule 21F-12(a)

[[Page 34348]]

that either the Commission or the claimant identifies for inclusion in 
the record. We believe that this modification is appropriate because it 
expressly provides the claimant with an opportunity to designate items 
for the appellate record from among those items set forth in Rule 21F-
12(a).
    Finally, with respect to the suggestion that we include a provision 
that would afford attorneys' fees pursuant to the Equal Access to 
Justice Act to a claimant any time he or she prevails on appeal, we 
believe that this would be inconsistent with EAJA's substantive 
terms,\363\ which set forth the specific circumstances under which a 
prevailing party may obtain attorney's fees.
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    \363\ See, e.g., Equal Access to Justice Act (EAJA) 28 U.S.C. 
2412(d)(1)(A) (``[A] court shall award to a prevailing party other 
than the United States fees and other expenses * * * incurred by 
that party in any civil action (other than cases sounding in tort), 
including proceedings for judicial review of agency action, brought 
by or against the United States in any court having jurisdiction of 
that action, unless the court finds that the position of the United 
States was substantially justified or that special circumstances 
make an award unjust.'').
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M. Rule 21F-14--Procedures Applicable to Payment of Awards

    Proposed Rule 21F-13 addressed the procedures for payment of awards 
to whistleblowers. After considering the comments on this proposal, we 
are adopting the rule as proposed, except that we are redesignating the 
rule as Rule 21F-14.
a. Proposed Rule
    Paragraph (a) of the proposed rule provided that 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.\364\ Paragraph (b) provided 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. 
Both of these provisions derive from language in Section 21F(b) of the 
Exchange Act.\365\
---------------------------------------------------------------------------

    \364\ 15 U.S.C. 78u-6(g).
    \365\ 15 U.S.C. 78u-6(b).
---------------------------------------------------------------------------

    Paragraph (c) addressed the timing for payment. It stated 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.
    Paragraph (d) of the proposed rule described 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 otherwise should be made. 
In general, the provision specified the priority among whistleblowers 
for payment when amounts become available in the Fund to pay awards.
b. Comments Received
    We received only a few comments on the payment procedures under 
proposed rule 21F-13 and our request for comment on the possibility 
that whistleblowers could be paid with monies that otherwise could be 
distributed to victims pursuant to a Commission action.\366\
---------------------------------------------------------------------------

    \366\ 15 U.S.C. 78u-6(g)(3)(B). That possibility arises from a 
provision in the law that requires the Commission to deposit into 
the Fund an amount equal to the unsatisfied portion of a 
whistleblower award from any monetary sanction collected by the 
Commission in the Commission action on which the award is based if 
the balance of the Fund is not sufficient to satisfy the award.
---------------------------------------------------------------------------

    One commenter stated that it was improper to reward whistleblowers 
at the expense of victims and suggested that the Commission consider 
the interests of victims first and reward whistleblowers only after 
victims have been made whole.\367\ Another commenter believed that the 
tension between paying an award to a whistleblower and compensating 
victims is unlikely to occur given the present balance of the Fund, but 
suggested that, if the tension did arise, the Commission could defer 
paying an award to a whistleblower until all victims have been 
compensated, or alternatively, ask the whistleblower to voluntarily 
defer payment of an award until all victims have been compensated.\368\ 
A third commenter stated that the Commission should make sure that the 
IRS is notified of any payments to whistleblowers and that any award 
recipient receives a Form 1099.\369\
---------------------------------------------------------------------------

    \367\ See letter from Americans for Limited Government.
    \368\ See letter from Georg Merkl.
    \369\ See letter from John Wahh.
---------------------------------------------------------------------------

c. Final Rule
    After reviewing and considering the comments, we are adopting Rule 
21F-13 as proposed, except that we are redesignating the rule as Rule 
21F-14.
    We are sympathetic to the commenters' concern that in some 
circumstances whistleblowers might be paid with monies that otherwise 
could be distributed to victims pursuant to a Commission action. That 
possibility is a consequence of the whistleblower statute, however, not 
the rule. Moreover, deferring payment to a whistleblower would not 
resolve this issue. If there are insufficient amounts in the Fund to 
pay a whistleblower award, the statute requires that monies needed to 
satisfy the award be deposited into the Fund from any monies collected 
in the Commission action on which the award is based. Once deposited 
into the Fund, these monies can be paid only to a whistleblower (or for 
specified purposes to the SEC's Inspector General), not to victims. 
Deferring payment to a whistleblower would not free up these monies to 
compensate victims first. Accordingly, we are constrained by the 
funding mechanism established in the whistleblower statute, and do not 
believe that the issue can be resolved through payment procedures.\370\
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    \370\ We agree with the comment that we notify the IRS and issue 
Form 1099 for any whistleblower payment, but we do not believe that 
any change to the rule is necessary to accomplish this. We expect to 
issue Form 1099-MISC to each whistleblower and the IRS upon payment 
of an award to a whistleblower who is not a foreign national. We 
will coordinate with the IRS regarding the tax filing requirements 
that may be applicable to the payment of an award to a whistleblower 
who is a foreign national.
---------------------------------------------------------------------------

    As in the proposed rule, paragraph (a) of the rule that we are 
adopting today provides that any award made pursuant to the rules will 
be paid from the Fund. This provision derives directly from Section 
21F(b)(2) of the Exchange Act, which states that any amount paid to a 
whistleblower shall be paid from the Fund.\371\ Paragraph (b) provides 
that a recipient of a whistleblower award is 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. 
\372\ This requirement derives 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.\373\
---------------------------------------------------------------------------

    \371\ 15 U.S.C. 78u-6(b)(2).
    \372\ Where the Commission receives a monetary sanction that is 
deemed satisfied by payment of a separate money judgment obtained by 
an entity described in Rule 21F-3(c)(1)--i.e., a payment in a 
``related action''--the monetary sanction will not be counted as 
having been collected in both the Commission action and in the 
related action.
    \373\ 15 U.S.C. 78u-6(b)(1). We note that, if monetary sanctions 
are ordered to be paid in a Commission or related action, but 
payment is waived, in whole or in part, for inability to pay or for 
other reasons, payment to a whistleblower is made only with respect 
to the amounts actually collected in such action. However, this does 
not affect whether the $1,000,000 monetary sanctions threshold is 
satisfied for purposes of qualifying as a covered action.

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[[Page 34349]]

    Paragraph (c) of the final rule, like the proposed rule, provides 
that any payment of an award for a monetary sanction collected in a 
Commission action will 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 whistleblower claims. In that circumstance, if one 
whistleblower appealed 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.
    Finally, as in the proposed rule, paragraph (d) of the final rule 
describes how the Commission will 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 will be paid when amounts become 
available in the Fund, subject to the terms set forth in paragraphs 
(d)(1) and (d)(2). Under 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 will 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 will be paid on a pro rata basis until sufficient amounts 
become available in the Fund to pay their entire payments. Under 
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 will share the same payment priority and 
will be paid on a pro rata basis until sufficient amounts become 
available in the Fund to pay their entire payments.

N. Rule 21F-15--No Amnesty

a. Proposed Rule
    Proposed rule 21F-14 stated that the provisions of Section 21F of 
the Exchange Act do not provide whistleblowers with amnesty or immunity 
for their own misconduct. However, the proposed rule noted that the 
Commission will take whistleblowers' cooperation into consideration in 
accordance with its Policy Statement Concerning Cooperation by 
Individuals in [SEC] Investigations and Related Enforcement Actions (17 
CFR 202.12).
b. Comments Received
    We received few comments on this proposed rule. All of the 
commenters urged the Commission to adopt a liberal approach to granting 
amnesty to whistleblowers.\374\ One commenter suggested that there will 
be a large group of high-quality potential whistleblowers that have 
concerns about their potential liability and will not come forward to 
report securities violations without assurances that they will not be 
civilly or criminally prosecuted.\375\ Another commenter stated that 
there should be no firm rule on amnesty.\376\
---------------------------------------------------------------------------

    \374\ See, e.g., letters from NWC, John Wahh and Stuart D. 
Meissner, LLC.
    \375\ See letter from Stuart D. Meissner, LLC.
    \376\ See letter from NWC.
---------------------------------------------------------------------------

c. Final Rule
    We are adopting the proposed rule without modification, except that 
we have redesignated it as Rule 21F-15. The final rule provides notice 
that whistleblowers will not automatically receive amnesty if they 
provide information about securities violations to the Commission. Of 
course, whistleblowers who have not participated in misconduct will not 
need amnesty.
    With respect to the suggestion that we establish a process in which 
whistleblowers can receive amnesty or other forms of leniency, such 
policies and procedures have already been publicly promulgated in the 
``Fostering Cooperation'' section of the Enforcement Manual for the 
Division of Enforcement. This section discusses in detail the wide 
spectrum of tools available to the Commission and its staff for 
facilitating and rewarding whistleblowers and other cooperators, 
ranging from taking no enforcement action to pursuing reduced charges 
and sanctions in connection with enforcement actions.\377\
---------------------------------------------------------------------------

    \377\ See http://www.sec.gov/divisions/enforce/enforcementmanual.pdf#6.2.
---------------------------------------------------------------------------

O. Rule 21F-16--Awards to Whistleblowers who Engage in Culpable Conduct

a. Proposed Rule
    Proposed rule 21F-15 stated that, for purposes of determining 
whether the required $1,000,000 threshold for an award has been 
satisfied, the Commission would not include any monetary sanctions that 
the whistleblower is ordered to pay, or that an entity is ordered to 
pay if the entity's liability is based substantially on conduct that 
the whistleblower directed, planned, or initiated. The proposed rule 
also stated that the Commission will not include any such amounts in 
the total monetary sanctions collected for purposes of calculating the 
amount of an award payment to a whistleblower.
b. Comments Received
    We received many comments on this proposed rule. The comments 
addressed whether whistleblowers' culpability in the unlawful conduct 
should be a basis for excluding them from eligibility for an award or 
reducing the amount of their awards.
    Many of the commenters opposed any rule that would exclude culpable 
whistleblowers from eligibility for awards or would reduce the amount 
of their awards, reasoning that without sufficient financial incentives 
potential high-quality whistleblowers would not come forward and fraud 
schemes would go undetected or be discovered much later than they 
otherwise might.\378\ Some commenters contended that the Commission did 
not have the statutory authority to exclude culpable whistleblowers 
from eligibility for awards beyond what is already contained in the 
statute--that is, whistleblowers who are convicted of a criminal 
violation related to the covered action.\379\ Other commenters argued 
that culpable whistleblowers are often ``insiders'' with valuable 
first-hand knowledge of fraudulent conduct, and as such are frequently 
the best sources of information about companies and senior level 
management involved in

[[Page 34350]]

misconduct.\380\ One commenter suggested that allowing culpable 
whistleblowers to be eligible for awards may also deter future 
misconduct because securities violators would know that they forever 
face an increased risk that one of their co-conspirators ``might turn 
state's evidence against them.'' \381\
---------------------------------------------------------------------------

    \378\ See, e.g., letters from Auditing Standards Committee, NWC 
and Sipio.
    \379\ See, e.g., letter from NWC.
    \380\ See, e.g., letters from Vogel, Slade & Goldstein; Kenney & 
McCafferty; Georg Merkl; and NWC.
    \381\ See letter from NWC.
---------------------------------------------------------------------------

    Many other commenters advocated that culpable whistleblowers should 
not be eligible for awards because the failure to exclude such 
whistleblowers would create significant incentives for individuals to 
engage in wrongdoing.\382\ Some commenters stated that, if the final 
rule allows for awards to culpable whistleblowers, a whistleblower 
would have an incentive to conceal or fail to disclose a fraud as it 
continues to grow in order to satisfy the $1,000,000 threshold for 
award eligibility or to receive a larger award.\383\ Others expressed 
concern that paying awards to culpable whistleblowers would harm 
internal compliance programs because it is critical that employees 
raise ethical and compliance concerns before a violation occurs and the 
proposed rules would incentivize whistleblowers to bypass or delay 
reporting violations internally.\384\
---------------------------------------------------------------------------

    \382\ See, e.g., letters from SIFMA, Business Roundtable, 
Washington Legal Foundation, Morgan Lewis, Financial Services 
Roundtable, Society of Corporate Secretaries, Wells Fargo, Trace, 
Alcoa Group, Oppenheimer Funds, Association of Corporate Counsel, 
CCMC, Connolly & Finkel, Target, Thompson Hine, Americans for 
Limited Government, Ryder Systems, Verizon, AT&T, Institute for 
Corporate Ethics, TRACE International, Inc., and ABA.
    \383\ See, e.g., letters from AT&T, Davis Polk, and John Wahh.
    \384\ See, e.g., letters from the Business Roundtable and AT&T.
---------------------------------------------------------------------------

    Other commenters recommended that the final rule should limit, but 
not prohibit, awards to culpable whistleblowers.\385\ One commenter 
stated that the rules should allow the Commission to evaluate a 
person's culpable conduct and use that evaluation as a basis for 
reducing the amount of an award.\386\ Several commenters stated that 
the role and culpability of the whistleblower in the unlawful conduct 
should be a required criterion that would result in reducing the amount 
of an award within the 10 to 30 percent range.\387\ Others suggested 
that a partial exclusion of culpable whistleblowers would be more 
appropriate. Specifically, these commenters recommended that 
whistleblowers' unlawful conduct should not be considered for 
determining the amount of a whistleblower award but should be 
considered when determining whether the $1,000,000 threshold has been 
met because the proposed rule disincentivizes individuals even 
marginally involved in the wrongful conduct from helping the Commission 
bring a successful enforcement action.\388\
---------------------------------------------------------------------------

    \385\ See, e.g., letters from Chris Barnard and Peter van 
Schaick.
    \386\ See the letter from ABA.
    \387\ See, e.g., letters from the Auditing Standards Committee 
of the Auditing Section of the American Accounting Association, 
Wells Fargo, Chris Barnard and Peter van Schaick.
    \388\ See, e.g., letters from DC Bar and Connolly & Finkel.
---------------------------------------------------------------------------

c. Final Rule
    We are adopting the proposed rule without modification, except that 
we are redesignating it as Rule 21F-16. After carefully considering the 
comments, we believe that the final rule appropriately incentivizes 
culpable whistleblowers to report securities violations while 
preventing culpable whistleblowers from financially benefiting from 
their own misconduct or misconduct for which they are substantially 
responsible.
    As a preliminary matter, we do not believe that a per se exclusion 
for culpable whistleblowers is consistent with Section 21F of the 
Exchange Act. As commenters noted, the original Federal whistleblower 
statute--the False Claims Act--was premised on the notion that one 
effective way to bring about justice is to use a rogue to catch a 
rogue.\389\ This basic law enforcement principle is especially true for 
sophisticated securities fraud schemes which can be difficult for law 
enforcement authorities to detect and prosecute without insider 
information and assistance from participants in the scheme or their 
coconspirators. Insiders regularly provide law enforcement authorities 
with early and invaluable assistance in identifying the scope, 
participants, victims, and ill-gotten gains from these fraudulent 
schemes. Accordingly, culpable whistleblowers can enhance the 
Commission's ability to detect violations of the Federal securities 
laws, increase the effectiveness and efficiency of the Commission's 
investigations, and provide important evidence for the Commission's 
enforcement actions.
---------------------------------------------------------------------------

    \389\ See Cong.--Globe, 37th Cong., 3d Sess. 955-56 (1863), 
quoted in Issues and Developments in Citizen Suits and Qui Tam 
Actions: Private Enforcement of Public Policy 119, 121 (1996) (U.S. 
Senator Jacob M. Howard--``I have based (the provisions of False 
Claims Act) on the old fashioned idea of holding out a temptation 
and `setting a rogue to catch a rogue,' which is the safest and most 
expeditious way of bringing rogues to justice.'').
---------------------------------------------------------------------------

    Nevertheless, we share commenters' concern that failing to limit 
culpable whistleblowers' eligibility for awards could create incentives 
that are contrary to public policy. Accordingly, for purposes of 
determining whether the $1,000,000 threshold has been satisfied or 
calculating the amount of an award, the Commission will not count any 
monetary sanctions that the whistleblower is ordered to pay or that are 
ordered to be paid against any entity whose liability is based 
substantially on conduct that the whistleblower directed, planned, or 
initiated.\390\ This final rule provides an incentive for less culpable 
individuals to come forward and disclose illegal conduct involving 
others. At the same time, the rule limits awards based on the conduct 
attributable to the culpable whistleblower. The rationale for this 
limitation is that the common understanding of a whistleblower is one 
who reports misconduct by another person and it would be contrary to 
public policy for whistleblowers to benefit from their own misconduct. 
As for the suggestion that a partial exclusion for culpable 
whistleblowers should be adopted by the Commission, we believe that it 
would be inappropriate to treat culpable whistleblowers more favorably 
than other less or non-culpable whistleblowers, even if such 
differential treatment could result in additional submissions from 
culpable whistleblowers. Accordingly, we do not believe that the 
monetary sanctions of an entity associated with misconduct that the 
whistleblower substantially directed, planned, or initiated the 
reported misconduct should be considered when determining whether the 
culpable whistleblower met the $1,000,000 threshold. Finally, to 
minimize any incentive for whistleblowers to conceal misconduct or to 
delay reporting it, we have included in Rule 21F-6 a provision that 
requires the Commission to consider whether it would be appropriate to 
decrease a whistleblower's award percentage because of the culpability 
of

[[Page 34351]]

the whistleblower or any substantial and unreasonable reporting delay 
by the whistleblower.\391\
---------------------------------------------------------------------------

    \390\ In addition, as part of a negotiated settlement agreement, 
deferred prosecution agreement, non-prosecution agreement, immunity 
agreement, cooperation agreement, or other similar agreement with a 
highly culpable whistleblower, we have the ability to obtain the 
whistleblower's agreement to accept less than the statutory minimum 
or to forgo seeking a whistleblower award. We may exercise this 
authority in appropriate cases, including cases involving 
whistleblowers who seek to participate in the Commission's 
Cooperation Program and who substantially directed, planned, or 
initiated the violation.
    \391\ We do not agree with the suggestion of some commenters 
that the rule will create an incentive for culpable whistleblowers 
to delay reporting in order to increase the potential for a larger 
award. Under these rules, a whistleblower has the greatest 
likelihood of receiving an award if he reports misconduct to us 
first. If a culpable whistleblower delays reporting, he runs the 
substantial risk that another person will report first, or that the 
misconduct will otherwise come to light, which will not only make 
the whistleblower unlikely to obtain an award, but will increase the 
likelihood that he will be prosecuted for his involvement in the 
misconduct.
---------------------------------------------------------------------------

P. Rule 21F-17--Staff Communications With Individuals Reporting 
Possible Securities Law Violations

a. Proposed Rule
    Proposed Rule 21F-16(a) provided that no person may take any action 
to impede a whistleblower from communicating directly with the 
Commission staff about a possible securities law violation, including 
enforcing, or threatening to enforce, a confidentiality agreement 
(other than agreements dealing with information covered by Sec.  
240.21F-4(b)(4)(i) & (ii) of this chapter related to the legal 
representation of a client) with respect to such communications. The 
Congressional purpose underlying Section 21F of the Exchange Act is to 
encourage whistleblowers to report possible violations of the 
securities laws by providing financial incentives, prohibiting 
employment-related retaliation, and providing various confidentiality 
guarantees.
    Proposed Rule 21F-16(b) clarified the staff's authority to 
communicate directly with whistleblowers who are directors, officers, 
members, agents, or employees of an entity that has counsel, and who 
have initiated communication with the Commission related to a possible 
securities law violation. The proposed rule stated that the staff is 
authorized to communicate directly with these individuals without first 
seeking the consent of the entity's counsel. The objective of paragraph 
(b) is to implement several important policies inherent in Section 21F 
in a manner consistent with the state bar ethics rules governing the 
professional responsibilities of members of the staff who act in the 
capacity of attorneys.
    Every jurisdiction that regulates the professional responsibility 
of lawyers has adopted some variation of ABA Model Rule 4.2, which 
provides: ``In representing a client, a lawyer shall not communicate 
about the subject of the representation with a person the lawyer knows 
to be represented by another lawyer in the matter, unless the lawyer 
has the consent of the other lawyer or is authorized to do so by law or 
a court order.''\392\
---------------------------------------------------------------------------

    \392\ Model Rules of Prof'l Conduct R. 4.2. The primary purpose 
of ABA Model Rule 4.2 is to protect the attorney-client relationship 
and to protect represented persons, in the absence of their lawyers, 
from being taken advantage of by lawyers who are not representing 
their interests.
---------------------------------------------------------------------------

    In the context of organizational entities represented by 
lawyers,\393\ a difficulty in applying the various state versions of 
ABA Model Rule 4.2 is identifying those actors within the entity--such 
as directors or officers--that are the embodiment of the represented 
entity such that the proscription against contact applies.\394\ This is 
so in part because the various state bar ethics rules have differing 
definitions of which organizational constituents are covered by Rule 
4.2.\395\
---------------------------------------------------------------------------

    \393\ See generally Upjohn Co. v. United States, 449 U.S. 383 
(1981).
    \394\ Comment 7 to ABA Model Rule 4.2 addresses this issue: In 
the case of a represented organization, this Rule prohibits 
communications with a constituent of the organization who 
supervises, directs or regularly consults with the organization's 
lawyer concerning the matter or has authority to obligate the 
organization with respect to the matter or whose act or omission in 
connection with the matter may be imputed to the organization for 
purposes of civil or criminal liability. Consent of the 
organization's lawyer is not required for communication with a 
former constituent. If a constituent of the organization is 
represented in the matter by his or her own counsel, the consent by 
that counsel to a communication will be sufficient for purposes of 
this Rule. Compare Rule 3.4(f). In communicating with a current or 
former constituent of an organization, a lawyer must not use methods 
of obtaining evidence that violate the legal rights of the 
organization.
    \395\ Comment 5 to the ABA Model Rule 4.2 specifically carves 
out a potential exception for ``investigative activities of lawyers 
representing governmental entities, directly or through 
investigative agents, prior to the commencement of criminal or civil 
enforcement proceedings.'' The commentary, and most state 
professional responsibility rules, do not specify which governmental 
investigative activities are exempt.
---------------------------------------------------------------------------

    As explained above, however, Section 21F of the Exchange Act 
evinces a Congressional purpose to facilitate the disclosure of 
information to the Commission relating to possible securities law 
violations and to preserve the confidentiality of those who do so.\396\ 
This Congressional policy would be significantly impaired were the 
Commission required to seek the consent of an entity's counsel before 
speaking with a whistleblower who contacts us and who is a director, 
officer, member, agent, or employee of the entity. Similarly, 
whistleblowers falling within these categories could be less inclined 
to report possible securities law violations if they believed there was 
a risk that the Commission staff might be required to request consent 
of the entity's counsel--thus disclosing the whistleblower's identity--
before speaking to him or her.
---------------------------------------------------------------------------

    \396\ See, e.g., Exchange Act Section 21F (b) through (d) and 
(h), 15 U.S.C 78u-6 (b) through (d) and (h).
---------------------------------------------------------------------------

    For this reason, Section 21F necessarily authorizes the Commission 
to communicate directly with these individuals without first obtaining 
the consent of the entity's counsel. Paragraph (b) of the proposal 
would clarify this authority by providing that, in the context of 
whistleblower-initiated contacts with the Commission, all discussions 
with a director, officer, member, agent, or employee of an entity that 
has counsel are ``authorized by law''\397\ and, will therefore not 
require consent of the entity's counsel as might otherwise be required 
by rules of professional conduct.\398\
---------------------------------------------------------------------------

    \397\ As noted, ABA Model Rule 4.2 allows for contacts with 
represented persons without the consent of the person's lawyer if 
such contacts are ``authorized by law.'' Every state bar ethics 
rules, in accordance with ABA Model Rule 4.2, has some variation of 
an authorized by law exception. Thus, in the context of 
communications initiated by a whistleblower who is also the 
director, officer, member, agent, or employee of an entity that has 
counsel, the proposed rule would make clear that contacts and 
communications between these individuals and the staff are 
``authorized by law.''
    \398\ The proposed rule is not intended, and will not be used, 
to obtain otherwise privileged information about the entity. See SEC 
Division of Enforcement Manual Sec.  3.3.1.
---------------------------------------------------------------------------

b. Comments Received
    The comments that we received on Proposed Rule 21F-16(a) supported 
it. One commenter noted that the proposed rule is especially important 
because many firms require employees to sign confidentiality 
agreements.\399\
---------------------------------------------------------------------------

    \399\ See letter from POGO. See also, e.g., letters from Kurt 
Schulzke (stating the proposed rule represents an improvement over 
the False Claims Act and IRS whistleblower regimes because of ``(a) 
the effective nullification of confidentiality agreements and other 
actions to `impede a whistleblower from communicating directly with 
the Commission staff about a potential securities law violation' and 
(b) the empowerment of the Commission staff to communicate directly 
with whistleblowers regardless of state bar ethics rules governing 
communications with represented parties.''); VOICES (stating that a 
whistleblower should not be prevented from communicating directly 
with the Commission staff by actions such as enforcing, or 
threatening to enforce, a confidentiality agreement because such 
actions would ``conflict with the purpose of the statute'').
---------------------------------------------------------------------------

    With respect to Proposed Rule 21F-16(b), a couple of commenters 
supported the proposal,\400\ but others opposed it.\401\ Those 
commenters

[[Page 34352]]

opposing the proposal generally expressed concern that it could 
significantly erode the protections of the attorney-client privilege 
because the staff could seek to obtain attorney-client privileged 
information during the communications, or treat any attorney-client 
information that the whistleblower conveys as a waiver of the 
privilege. Several of these commenters recommended that the final rule 
should contain express language stating that the staff is not permitted 
to obtain attorney-client information during any communications 
authorized by the rule.\402\
---------------------------------------------------------------------------

    \400\ See, e.g., letters from NWC; Kurt Schulzke. See also 
Letter from Society of Corporate Secretaries (stating the Commission 
``does not `need permission' to speak directly with a 
whistleblower,'' but should ``be required to give the company notice 
that it intends to do so[.]'').
    \401\ See, e.g., letters from Business Roundtable; Financial 
Services Roundtable; GE Group; Alcoa Group; Association of Corporate 
Counsel; GE Group; Auditing Standards Committee.
    \402\ See, e.g., letters from GE Group; Auditing Standards 
Committee; Business Roundtable.
---------------------------------------------------------------------------

    Finally, a few comment letters asserted that the Commission lacks 
authority to establish an ``authorized by law'' \403\ exception to 
state attorney ethics rule that would permit the staff to engage in 
these types of communications without the consent of the entity's 
counsel.\404\ One of these commenters argued that nothing in Section 
21F of the Exchange Act indicates that Congress intended to undermine 
the so-called McDade-Murtha Amendment, which requires attorneys at the 
Department of Justice to comply with the state bar disciplinary rules 
of the state in which they are licensed.\405\
---------------------------------------------------------------------------

    \403\ Model Rules of Professional Conduct, Rule 4.2.
    \404\ See, e.g., letters from GE Group; Financial Services 
Roundtable; Association of Corporate Counsel.
    \405\ 28 U.S.C. 530B.
---------------------------------------------------------------------------

c. Final Rule
    After reviewing the comments, we are adopting Rule 21F-16 as 
proposed, except that we have redesignated it as Rule 21F-17.\406\
---------------------------------------------------------------------------

    \406\ We have modified the rule text to make clear that it 
applies to any individual seeking to report possible securities law 
violations to the Commission, and not just those who provide 
information to us pursuant to the procedures set forth in Rule 21F-
9(a).
---------------------------------------------------------------------------

    Rule 21F-17(a) is necessary and appropriate because, as we noted in 
the proposing release, efforts to impede an individual's direct 
communications with Commission staff about a possible securities law 
violation would conflict with the statutory purpose of encouraging 
individuals to report to the Commission.\407\ Thus, an attempt to 
enforce a confidentiality agreement against an individual to prevent 
his or her communications with Commission staff about a possible 
securities law violation could inhibit those communications even when 
such an agreement would be legally unenforceable,\408\ and would 
undermine the effectiveness of the countervailing incentives that 
Congress established to encourage individuals to disclose possible 
violations to the Commission.\409\
---------------------------------------------------------------------------

    \407\ Based on the suggestion of a commenter, we wish to clarify 
that confidentiality agreements or protective orders entered in SRO 
arbitration or adjudicatory proceedings may not be used to prevent a 
party from reporting to us possible securities law violations that 
he or she discovers during the proceedings. See letter from Stuart 
D. Meissner, LLC. Indeed, given that the SRO's are charged with 
helping us enforce the Federal securities laws, it would be an odd 
result if one party in an SRO proceeding could use a protective 
order to prevent another party from reporting a possible securities 
law violation to us.
    \408\ See, e.g., In re JDS Uniphase Corp. Sec. Litig., 238 
F.Supp.2d 1127, 1137 (N.D.Cal.2002) (``To the extent that [the 
confidentiality] agreements preclude former employees from assisting 
in investigations of wrongdoing that have nothing to do with trade 
secrets or other confidential business information, they conflict 
with public policy in favor of allowing even current employees to 
assist in securities fraud investigations.''); Chambers v. Capital 
Cities/ABC, 159 F.R.D. 441, 444 (S.D.N.Y.1995) (holding that ``it is 
against public policy for parties to agree not to reveal * * * facts 
relating to alleged or potential violations of [Federal] law'').
    \409\ The proposed rule would not, however, address the 
effectiveness or enforceability of confidentiality agreements in 
situations other than communications with the Commission about 
potential securities law violations. Paragraph (a) of the proposal 
is not intended to prevent professional or religious organizations 
from responding to a breach of a recognized common-law or statutory 
privilege (e.g., psychiatrist-patient, priest-penitent) by one its 
members.
---------------------------------------------------------------------------

    With respect to Rule 21F-17(b), we believe that this rule is a 
necessary and appropriate means to implement Section 21F's purposes of 
facilitating the disclosure of information to the Commission relating 
to possible securities law violations and preserving the 
confidentiality of those who do so.\410\ As a result, our rulemaking 
authority under Section 21F(j) permits us to authorize our staff to 
communicate directly with directors, officers, members, agents, or 
employees of an entity that has counsel where the individual first 
initiates communication with the Commission as a whistleblower. 
Moreover, because Rule 21F-17(b) fits within the ``authorized to do so 
by law'' exception of ABA Model Rule 4.2 and the state bar rules 
modeled after it, Rule 21F-17(b) is fully consistent with state bar 
rules.\411\
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    \410\ We have made one non-substantive clarifying change to the 
final rule text, replacing the term ``subject of your 
communication'' with ``possible securities law violation.'' The 
final rule provides that ``the staff is authorized to communicate 
directly with you regarding the possible securities law violation 
without seeking the consent of the entity's counsel.''
    \411\ We disagree with the comment that Rule 21F-17(b) is 
inconsistent with the McDade-Murtha Amendment, 28 U.S.C. 530B. 
First, as we discussed above, Rule 21F-17(b) does not preempt state 
bar ethics rules, but instead is simply an application of the 
``authorized by law'' exception. Second, McDade-Murtha does not 
apply to Commission attorneys.
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    Although a number of commenters expressed concern that this rule 
will undermine the attorney-client privilege, we emphasize that nothing 
about this rule authorizes the staff to depart from the Commission's 
existing procedures and practices when dealing with potential attorney-
client privileged information.\412\ As stated above,\413\ compliance 
with the Federal securities laws is promoted when individuals, 
corporate officers, and others consult about possible violations, and 
the attorney-client privilege furthers such consultation. None of the 
rules that we are promulgating under Section 21F, including Rule 21F-
17(b), is intended to undermine this benefit by having individuals 
disclose to us information about possible securities laws violations 
that they learned of through privileged communications. Thus, to the 
extent that the staff may be engaged in a communication authorized 
under Rule 21F-17(b) and issues relating to attorney-client privilege 
should develop, the staff will proceed in accordance with established 
Commission practices.\414\
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    \412\ See generally SEC Division of Enforcement Manual Sec.  4.
    \413\ See supra discussion of Rule 21F-4(b)(4)(i).
    \414\ One commenter recommended that we should establish 
operating procedures to deal with potentially privileged material. 
See letter from Standards Committee of the Auditing Section of the 
American Accounting Association. The staff is in the process of 
developing internal operating protocols for dealing with attorney-
client information that whistleblowers may provide us.
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III. Paperwork Reduction Act

    Certain provisions of the Proposed Rules contained ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act (``PRA'') of 1995.\415\ An agency may not sponsor, 
conduct, or require a response to an information collection unless a 
currently valid Office of Management and Budget (``OMB'') control 
number is displayed. The Commission submitted proposed collections of 
information to OMB for review in accordance with the PRA.\416\ The 
titles for the collections of information were: (1) Form TCR (Tip, 
Complaint or Referral), (2) Form WB-DEC (Declaration Concerning 
Original Information Provided Pursuant to Sec.  21F of the Securities 
Exchange Act of 1934), and (3) Form WB-APP (Application for Award for 
Original Information Provided Pursuant to Sec.  21F of the

[[Page 34353]]

Securities Exchange Act of 1934). These three forms were proposed to 
implement Section 21F of the Exchange Act. The proposed forms allowed a 
whistleblower to provide information to the Commission and its staff 
regarding (i) potential violations of the securities laws and (ii) the 
whistleblower's eligibility for and entitlement to an award.
---------------------------------------------------------------------------

    \415\ 44 U.S.C. 3501 et seq.
    \416\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    The Commission did not receive any comments that directly addressed 
its Paperwork Reduction Act analysis or its burden estimates.\417\ In 
comments on the rule proposals, a number of commenters suggested that 
the three-form process proposed for obtaining information from 
whistleblowers was burdensome.\418\ As we discuss in connection with 
Rule 21F-9, our final Rules require largely the same information to be 
collected, but in response to comments we have combined the information 
collection into only two forms--Form TCR, which incorporates several 
questions previously posed on Proposed Form WB-DEC, and Form WB-APP--to 
simplify the process for whistleblowers.
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    \417\ We received one comment generally opining that our 
proposed rules failed to adequately account for the time expended by 
counsel in representing whistleblowers that extends beyond the 
completion of our proposed forms. See letter from Stuart D. 
Meissner, LLC at n. 3.
    \418\ See. e.g., letters from Jane Liu; NWC; Patrick Burns.
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A. Summary of Collection of Information

    Form TCR, submitted pursuant to Rule 21F-9, requests the following 
information:
    1. Background information regarding each complainant submitting the 
TCR, including the person's name and contact information. We have added 
a section for the identification of additional complainants.
    2. If the complainant is represented by an attorney, the name and 
contact information for the complainant's attorney (in cases of 
anonymous submissions the person must be represented by an attorney);
    3. Information regarding the person or entity that is the subject 
of the tip or complaint, including contact information;
    4. Information regarding the tip or complaint, including the date 
of the alleged violation; the nature of the complaint; the type of 
security or investment, ticker symbol or CUSIP number and name of the 
issuer or security, if relevant; whether the complainant or counsel has 
had prior contact with Commission staff and with whom; whether 
information has been communicated to another agency and, if so, details 
about that communication, including the name and contact information 
for the point of contact at the agency, if available; whether the 
complaint relates to an entity of which the complainant is or was an 
officer, director, counsel, employee, consultant or contractor; whether 
the complainant has taken any prior actions regarding the complaint 
including reporting the violation to a supervisor, compliance office, 
whistleblower hotline, ombudsman, or any other available mechanism at 
the entity for reporting violations; and the date of such action was 
taken;
    5. A description of the facts pertinent to the alleged violation, 
including an explanation of why the complainant believes the acts 
described constitute a violation of the Federal securities laws;
    6. A description of all supporting materials in the complainant's 
possession and the availability and location of any additional 
supporting materials not in the complainant's possession;
    7. An explanation of how the person submitting the complaint 
obtained the information and, if any information was obtained form an 
attorney or in a communication where an attorney was present, the 
identification of any such information;
    8. A description of any information obtained from a public source 
and a description of such source;
    9. A description of any documents or other information in the 
complainant's submission that the complainant believes could reasonably 
be expected to reveal his or her identity, including an explanation of 
the basis for the complainant's belief that his or her identity would 
be revealed if the documents were disclosed to a third party; and
    10. Any additional information the complainant believes may be 
relevant.
    Also included in Form TCR are several items previously included in 
proposed Form WB-DEC, which was required to be submitted pursuant to 
Proposed Rule 21F-9. First, there are several questions that require a 
complainant to provide eligibility-related information, by checking a 
series of ``yes/no'' answers.\419\ Second, the form contains a 
declaration, signed under penalty of perjury, that the information 
provided to the Commission pursuant to Proposed Rule 21F-9 is true, 
correct and complete to the best of the person's knowledge, information 
and belief. Third, there is a counsel certification, which is required 
to be executed in instances where a complainant makes an anonymous 
submission pursuant to the whistleblower program and thus must be 
represented by an attorney. This statement certifies that the attorney 
has verified the complainant's identity, and has reviewed the 
complainant's completed and signed Form TCR for completeness and 
accuracy, and that the information contained therein is true, correct 
and complete to the best of the attorney's knowledge, information and 
belief. The certification also contains new statements, which were not 
included in proposed Form WB-DEC, that: (i) The attorney has obtained 
the complainant's non-waivable consent to provide the Commission with 
the original completed and signed Form TCR in the event that the 
Commission requests it due to concerns that the form may contain false, 
fictitious or fraudulent statements or representations that were 
knowingly or willfully made by the complainant; and (ii) the attorney 
consents to be legally obligated to provide the signed Form TCR within 
seven (7) calendar days of receiving such request from the Commission.
---------------------------------------------------------------------------

    \419\ See supra note 342 for a more detailed description of 
these questions.
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    Form WB-APP, submitted pursuant to Rules 21F-10 and F-11, requires 
the following information:
    (1) The applicant's name, address and contact information;
    (2) The applicant's social security number, if any;
    (3) If the person is represented by an attorney, the name and 
contact information for the attorney (in cases of anonymous submissions 
the person must be represented by an attorney);
    (4) Details concerning the tip or complaint, including (a) the 
manner in which the information was submitted to the SEC, (b) the 
subject of the tip, complaint or referral (TCR), (c) the TCR number, 
and (d) the date the TCR was submitted to the SEC;
    (5) Information concerning the Notice of Covered Action to which 
the claim relates, including (i) the date of the Notice, (ii) the 
Notice number, and (iii) the case name and number;
    (6) For related actions, (i) the name and contact information for 
the agency or organization to which the person provided the original 
information; (ii) the date the person provided this information, (ii) 
the date the agency or organization filed the related action, (iv) the 
case name and number of the related action, and (v) the name and 
contact information for the point of contact at the agency or 
organization, if known;
    (7) A series of questions concerning the person's eligibility to 
receive an

[[Page 34354]]

award as described in the discussion Form TCR above; \420\
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    \420\ See supra at 211 and note 342.
---------------------------------------------------------------------------

    (8) An optional explanation of the reasons that the person believes 
he is entitled to an award in connection with his submission of 
information to the Commission, or to another agency in a related 
action, including any additional information and supporting documents 
that may be relevant in light of the criteria for determining the 
amount of an award set forth in Rule 21F-6, and any supporting 
documents; and
    (9) A declaration, signed under penalty of perjury, that the 
information provided in Form WB-APP is true, correct and complete to 
the best of the person's knowledge, information and belief.

B. Use of Information

    The collection of information on Forms TCR and WB-APP will be used 
to permit the Commission and its staff to collect information from 
whistleblowers regarding alleged violations of the Federal securities 
laws and to determine claims for whistleblower awards.

C. Respondents

    The likely respondents to Form TCR will be individuals who wish to 
provide information relating to possible violations of the Federal 
securities laws and who wish to be eligible for whistleblower awards. 
The likely respondents to Form WB-APP will be individuals who have 
provided the Commission or to another agency in a related action with 
information relating to a possible violation of the Federal securities 
laws and who believe they are entitled to an award.

D. Total Annual Reporting and Recordkeeping Burden

i. Form TCR
    The Commission estimates that it will receive approximately 30,000 
tips, complaints and referrals submissions each year through its 
Electronic Data Collection System or completed forms TCR.\421\ Of those 
30,000 submissions, the Commission estimates that it will receive 
approximately 3,000 Forms TCR each year.\422\ Each respondent would 
submit only one Form TCR and would not have a recurring obligation. In 
the proposing release, we proposed that a whistleblower would have to 
complete two forms, proposed Form TCR and proposed Form WB-DEC, to be 
eligible for an award. In the Final Rules, we have eliminated Form WB-
DEC and added the eligibility questions from that proposed form to Form 
TCR.
---------------------------------------------------------------------------

    \421\ This number is a staff estimate based upon the volume of 
tips, complaints or referrals received by the Commission on a 
monthly basis during the past year. The staff believes that the 
volume of tips, complaints and referrals the Commission has received 
more recently, and particularly in the months since the passage of 
Dodd-Frank, provides a more accurate basis for estimating future 
volumes.
    \422\ This number is a staff estimate based upon the expectation 
that roughly 10 percent of all tips received by the Commission will 
be submitted in hard copy on Form TCR. The staff anticipates that 
most whistleblowers will elect to submit their information 
electronically. The electronic submission of information will 
provide whistleblowers with increased ease of use and will allow 
whistleblowers to submit more detailed information in roughly the 
same amount of time it would take them to complete a hard copy Form 
TCR. Moreover, the Commission should be able to use the information 
submitted electronically more effectively and efficiently. For 
example, the Commission will be able to conduct electronic searches 
of information without first having to convert the data into an 
electronic format.
---------------------------------------------------------------------------

    The Commission estimates that it will take a whistleblower, on 
average, one hour to complete the portion of Form TCR that does not 
include the questions that had previously been included in proposed 
Form WB-DEC. The completion time will depend largely on the complexity 
of the alleged violation and the amount of information the 
whistleblower possesses in support of the allegations. As a result, the 
Commission estimates that the annual PRA burden of Form TCR is 3,000 
hours.
    A person who submits information through a Form TCR or the 
Electronic Data Submission System and who wishes to be eligible for an 
award under the program must complete the remainder of Form TCR (the 
additional questions related to eligibility that had been included in 
Proposed Form WB-DEC). The Commission estimates that it will receive 
this additional information in roughly 50 percent of the cases in which 
the Commission receives a Form TCR or an electronic submission of 
information.\423\ As noted above, the Commission estimates that it will 
receive approximately 30,000 combined electronic submissions and 
submission on Form TCR each year. Thus, the Commission estimates that 
it will receive responses to these additional questions in 
approximately 15,000 instances. We estimate that it will take a 
whistleblower, on average, 0.5 hours to complete the remainder of Form 
TCR.\424\ Accordingly, we estimate that the annual PRA burden of the 
remainder of Form TCR is 7,500 hours.
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    \423\ This number is a staff estimate. Because this is a new 
program, the staff does not have prior relevant data on which it can 
base its estimate.
    \424\ This is consistent with our estimate of the time it would 
take a whistleblower, on average, to complete proposed Form WB-DEC.
---------------------------------------------------------------------------

ii. Form WB-APP
    Each whistleblower who believes that he is entitled to an award 
because he provided original information to the Commission that led to 
successful enforcement of a covered judicial or administrative action, 
or a related action, is required to submit a Form WB-APP to be 
considered for an award. A whistleblower can only submit a Form WB-APP 
after there has been a ``Notice of Covered Action'' published on the 
Commission's Web site pursuant to Proposed Rule 21F-10. We originally 
estimated that we would post approximately 130 such Notices each year. 
Because the final rules allow for the aggregation of proceedings in 
certain circumstances, as described in Rule 21F-4(d), we have increased 
that estimate to 143 Notices per year.\425\ In addition, we estimate 
that we will receive approximately 129 Forms WB-APP each year.\426\ 
Finally, we estimate that it will take a whistleblower, on average, two 
hours to complete Form WB-APP. The completion time will depend largely 
on the complexity of the alleged violation and the amount of 
information the whistleblower possesses in support of his application 
for an award. As a result, the Commission estimates that the annual PRA 
burden of Form WB-APP is 258 hours.
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    \425\ This number is a staff estimate based upon (i) the average 
number of actions during the past five years in which the Commission 
recovered monetary amounts, including penalties, disgorgement or 
prejudgment interest, in excess of $1,000,000; (ii) the assumption 
that there should be an increase (roughly 10 percent) in the number 
of such actions as a result of the aggregation of proceedings 
permitted under Rule 21F-4(d); and (iii) the assumption that there 
should be an additional increase (roughly 30 percent) in the number 
of such actions as a result of the whistleblower program.
    \426\ This number is a staff estimate based upon two 
expectations: first, that the Commission will receive Forms WB-APP 
in approximately 30 percent of cases in which it posts a Notice of 
Covered Action because we expect that we will continue to bring a 
substantial number of enforcement cases that are not based on 
whistleblower information; and second, that we will receive 
approximately 3 Forms WB-APP in each of those cases. Because this is 
a new program, the staff does not have prior relevant data on which 
it can base these estimates.
---------------------------------------------------------------------------

iii. Involvement and Cost of Attorneys
    Under the Proposed Rules, an anonymous whistleblower is required, 
and a whistleblower whose identity is known may elect, to retain 
counsel to represent the whistleblower in the whistleblower program. 
The Commission expects that, in most of those instances, the 
whistleblower's counsel will complete, or assist in the completion, of 
some or all of the required forms on behalf of the whistleblower. The 
Commission also

[[Page 34355]]

expects that in the vast majority of cases in which a whistleblower is 
represented by counsel, the whistleblower will enter into a contingency 
fee arrangement with counsel, providing that counsel will be paid for 
the representation through a fixed percentage of any recovery by the 
whistleblower under the program. Thus, most whistleblowers will not 
incur any direct, quantifiable expenses for attorneys' fees for the 
completion of the required forms.
    The Commission anticipates that a small number of whistleblowers 
(no more than five percent) will enter into hourly fee arrangements 
with counsel.\427\ In those cases, a whistleblower will incur direct 
expenses for attorneys' fees for the completion of the required forms. 
To estimate those expenses, the Commission makes the following 
assumptions:
---------------------------------------------------------------------------

    \427\ This estimate is based, in part, on the Commission's 
belief that most whistleblowers likely will not retain counsel to 
assist them in preparing the forms.
---------------------------------------------------------------------------

    (i) The Commission will receive approximately 3,000 Forms TCR, 
1,500 of which contain eligibility-related information previously 
contained in Proposed Form WB-DEC, and 129 Forms WB-APP annually; \428\
---------------------------------------------------------------------------

    \428\ The bases for these assumed amounts are explained in 
Sections V.D.i., V.D.ii. and V.D.iii. above.
---------------------------------------------------------------------------

    (ii) Whistleblowers will pay hourly fees to counsel for the 
submission of approximately 75 Forms TCR and 6 Forms WB-APP annually; 
\429\
---------------------------------------------------------------------------

    \429\ These amounts are based on the assumption, as noted above, 
that no more than 5 percent of all whistleblowers will be 
represented by counsel pursuant to an hourly fee arrangement. The 
estimate of the number of Forms TCR submitted by attorneys on behalf 
of whistleblowers may turn out to be high because it is likely that 
most attorneys will submit tips electronically, rather than use the 
hard-copy Form TCR. However, in the absence of any historical data 
to rely upon, the Commission assumes that attorneys will submit 
hard-copy Forms TCR in the same percentages as all whistleblowers.
---------------------------------------------------------------------------

    (iii) Counsel retained by whistleblowers pursuant to an hourly fee 
arrangement will charge on average $400 per hour; \430\ and
---------------------------------------------------------------------------

    \430\ The Commission uses this hourly rate for estimating the 
billing rates of securities lawyers for purposes of other rules. 
Absent historical data for the Commission to rely upon in connection 
with the whistleblower program, the Commission believes that this 
billing rate estimate is appropriate, recognizing that some 
attorneys representing whistleblowers may not be securities lawyers 
and may charge different average hourly rates.
---------------------------------------------------------------------------

    (iv) Counsel will bill on average: (i) 2.5 hours to complete a Form 
TCR,\431\ (ii), and (iii) 10 hours to complete a Form WB-APP.\432\
---------------------------------------------------------------------------

    \431\ In the proposing release, we estimated that it would take 
an attorney, on average, 2 hours to complete proposed Form TCR. As 
noted above, in the Final Rules, we have added to Form TCR questions 
regarding eligibility that had been in proposed Form WB-DEC. As a 
result, we estimate that it will take an attorney, on average, 2.5 
hours to complete Form TCR.
    \432\ The Commission expects that counsel will likely charge a 
whistleblower for additional time required to gather from the 
whistleblower or other sources relevant information needed to 
complete Forms TCR and WB-APP. Accordingly, the Commission estimates 
that on average counsel will bill a whistleblower 2.5 hours for the 
completion of Form TCR and 10 hours for completion of Form WB-APP 
(even though the Commission estimates that a whistleblower will be 
able to complete the entire Form TCR (including the eligibility 
questions that had been found in Form WB-DEC) in 1.5 hours and Form 
WB-APP in two hours).
---------------------------------------------------------------------------

    Based on those assumptions, the Commission estimates that each year 
whistleblowers will incur the following total amounts of attorneys' 
fees for completion of the whistleblower program forms: (i) $75,000 for 
the completion of Form TCR; (ii) $24,000 for the completion of Form WB-
APP.

E. Mandatory Collection of Information

    A whistleblower would be required to complete either a Form TCR or 
submit his or her information electronically and to complete Form WB-
APP or submit his or her information electronically to qualify for a 
whistleblower award.

F. Confidentiality

    As explained above, the statute provides that the Commission must 
maintain the confidentiality of the identity of each whistleblower, 
subject to certain exceptions. Section 21F(h)(2) states that, except as 
expressly provided:
     [T]he Commission and any officer or employee of the 
Commission shall not disclose any information, including information 
provided by a whistleblower to the Commission, which could reasonably 
be expected to reveal the identity of a whistleblower, except in 
accordance with the provisions of section 552a of title 5, United 
States Code, unless and until required to be disclosed to a defendant 
or respondent in connection with a public proceeding instituted by the 
Commission [or certain specific entities listed in paragraph (C) of 
Section 21F(h)(2)].
    Section 21F(h)(2) also allows the Commission to share information 
received from whistleblowers with certain domestic and foreign 
regulatory and law enforcement agencies. However, the statute requires 
the domestic entities to maintain such information as confidential, and 
requires foreign entities to maintain such information in accordance 
with such assurances of confidentiality as the Commission deems 
appropriate.
    In addition, Section 21F(d)(2) provides that a whistleblower may 
submit information to the Commission anonymously, so long as the 
whistleblower is represented by counsel. However, the statute also 
provides that a whistleblower must disclose his or her identity prior 
to receiving payment of an award.

IV. Economic Analysis

    As discussed above, Section 21F of the Exchange Act (added by 
Section 922 of the Dodd-Frank Act) establishes substantial new 
incentives and protections for whistleblowers.\433\ First, eligible 
whistleblowers are entitled to an award equal to 10 to 30 percent of 
the money recovered when they voluntarily provide us with original 
information that leads to a monetary sanction greater than $1 million 
in a Commission enforcement action. Second, Section 21F prohibits 
employment retaliation against individuals for making submissions to us 
and it provides that whistleblowers may make these submissions 
anonymously.
---------------------------------------------------------------------------

    \433\ Whistleblowing is an individual decision that is generally 
guided by a complex mix of pecuniary elements (e.g., fear of job 
loss) and non-pecuniary elements (e.g., sense of ``doing the right 
thing,'' fear of social ostracism). See Geoffrey Christopher Rapp, 
Beyond Protection: Invigorating Incentives for Sarbanes-Oxley 
Corporate and Securities Fraud Whistleblowers, 87 Boston Univ. L. 
Rev. 91, 112-13 (2007) (citing sources); id. (``Assuming rational 
decision making, an employee will blow the whistle when the marginal 
private benefits exceed the marginal private costs.''). The 
whistleblower award program established by Section 21F seeks to 
shift the balance of these factors in favor of timely blowing the 
whistle over silence for individuals who may have useful, quality 
information about possible securities law violations.
---------------------------------------------------------------------------

    Although many of the requirements of the whistleblower award 
program are established by Section 21F, Congress authorized the 
Commission to issue rules and regulations as necessary or appropriate 
to implement the program. In doing so, we faced a number of policy 
issues on which we solicited public comment, including:
     Whether the whistleblower program should provide financial 
incentives for attorneys and others to breach the attorney-client 
privilege in order to seek an award?
     To what extent should the program provide awards to 
individuals who have violated the Federal securities laws?
     Whether the program should require employees to first 
report possible violations through their employer's internal compliance 
procedures before coming to the Commission? If not, should the program 
provide other incentives to encourage

[[Page 34356]]

employees to report internally in appropriate circumstances?
    In order to implement the program effectively, we addressed these 
and other issues in our proposed rules, which defined and interpreted 
various statutory provisions, and established procedures that 
whistleblowers must follow both when submitting information to us and 
when applying for awards.
    We requested comments and empirical data on all aspects of the 
economic analysis of the proposed rules, and received only a few 
comments specifically directed to that analysis. Two commenters 
recommended that we should consider the costs to companies and other 
entities that would result if employees are not required to report 
internally before coming to us.\434\ Likewise, two commenters 
recommended that we should revise the rules to reduce the costs on 
companies and the Commission that may result from ``false or spurious 
claims'' or ``meritless complaints'' of possible securities law 
violations.\435\ Although the commenter did not quantify these costs, 
it noted these costs would include companies' legal and accounting 
fees, and the Commission's costs to review and evaluate these frivolous 
submissions.
---------------------------------------------------------------------------

    \434\ See letters from the Association of Corporate Counsel and 
Edison Electric Institute. A number of other commenters also 
generally raised the concern that companies would be burdened if we 
did not require employees to report possible violations of the 
securities laws internally either before or simultaneously with the 
submission of information to the Commission. In our discussion of 
Rule 21F-4(c)(3) above, we discuss our views on this issue and our 
decision not to require whistleblowers to report internally.
    \435\ See letters from the ABA and Edison Electric Institute.
---------------------------------------------------------------------------

    Below we consider the costs and benefits of the final rules, and 
their effects on efficiency, competition, and capital formation. We 
limit our analysis to those rules on which we exercised discretion.

A. Analysis of Benefits, Costs, and Economic Effects of the Rules

    In promulgating these rules, we have sought to strike the right 
balance in defining terms and otherwise implementing the whistleblower 
program so as not to be overly restrictive or overly broad. Overly 
restrictive definitions or requirements could render the program 
ineffective if this meant that only a small fraction of whistleblowers 
who provide us with significant information would qualify for monetary 
rewards. This could discourage potential whistleblowers from coming 
forward with information about possible securities law violations, 
thereby depriving us of meritorious tips. This could in turn mean that 
some securities law violations would continue unreported for longer 
periods of time, with the result that overall enforcement and 
deterrence of violations would be less effective.
    By contrast, overly broad definitions and unduly permissive 
provisions could result in inefficient use of the Investor Protection 
Fund--especially in situations where the Commission is already well 
into the process of obtaining sufficient information to bring a 
successful enforcement action. An important effect of the whistleblower 
program is reduced economic cost of collecting necessary information 
about possible securities law violations. To achieve this, the rules 
should incentivize the prompt and early submission of high-quality, 
credible tips. From a cost-benefit perspective, doing so leverages the 
Investor Protection Fund to obtain the maximum benefit from the 
whistleblower program with respect to the twin goals of protecting 
investors and increasing public confidence in the markets.
    In addition to these considerations, we also assessed the economic 
impact of our final rules on investors, companies, and other corporate 
entities. We particularly focused on how the whistleblower program 
could effectively and efficiently use internal compliance programs in 
appropriate circumstances to best achieve the statutory objectives, 
without imposing undue costs on whistleblowers, investors, our 
enforcement efforts, or companies. We recognized that various policy 
options presented different trade-offs with respect to the costs and 
benefits imposed on these various interests.
    With these considerations in mind, and after reviewing the public 
comments we received, we have structured the definitions, 
interpretations, and other rule provisions to seek to (i) encourage 
high-quality submissions and discourage frivolous submissions, (ii) 
encourage whistleblowers to provide information early, rather than 
waiting to receive a request or inquiry from a relevant authority; 
(iii) minimize unnecessary burdens on whistleblowers and establish 
fair, transparent procedures; and (iv) promote the use of effective 
internal compliance programs in appropriate circumstances.
1. Eligibility for Anti-Retaliation Protection
    Rule 21F-2(b) states that anti-retaliation employment protection 
will be provided to whistleblowers who have a ``reasonable belief'' 
that the information they provide reveals a possible securities law 
violation. The ``reasonable belief'' standard provides a familiar legal 
framework that puts potential whistleblowers on notice that meritless 
submissions cannot be the basis for anti-retaliation protection.
    Reducing frivolous submissions in this way should provide benefits. 
First, Commission resources will be freed up to focus on more 
meritorious submissions. Second, the costs that employers can be forced 
to incur when employees abuse the anti-retaliation protections should 
be lower. These costs can include not only litigation costs resulting 
from bad faith claims of anti-retaliation, but also inefficiencies 
stemming from some employers' decisions not to take legitimate 
disciplinary action due to the threat of bad faith anti-retaliation 
litigation.
2. The Penalty of Perjury
    Rule 21F-9(b)--which requires whistleblowers who wish to 
participate in the whistleblower program to declare, under penalty of 
perjury, that their submission is truthful to the best of their 
knowledge--should similarly discourage frivolous submissions. This 
should reduce the costs incurred by the Commission from devoting 
resources to review and evaluate frivolous submissions, and also create 
efficiency gains by permitting the Commission to place greater reliance 
on the accuracy of information that is received.\436\ By reducing false 
and frivolous submissions, Rule 21F-9(b) should also reduce the costs 
to companies and other persons that might otherwise result from the 
Commission opening investigations based on false or spurious 
allegations of wrongdoing.
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    \436\ See, e.g., Alexander Dyck et al., Who Blows the Whistle on 
Corporate Fraud?, J. Fin. (2011), available at http://www.afajof.org/afa/forthcoming/4820p.pdf. The staff will review and 
evaluate all TCRs, regardless of whether the whistleblower has 
completed the declaration portion. However, because the declaration 
would aid in assessing reliability, the staff may consider whether a 
whistleblower has executed a declaration in prioritizing the 
investigation of TCRs and the allocation of the Division of 
Enforcement's limited resources. As Rule 21F-9 provides, a 
whistleblower will not be eligible for an award if he fails to 
complete the declaration at the time he submitted his TCR form.
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3. Monetary Award Eligibility
    Rule 21F-4 provides definitions for ``voluntary'' (e.g., before the 
Commission issues a subpoena or makes a request) \437\ and 
``information that leads

[[Page 34357]]

to successful enforcement.''\438\ These definitions are designed to 
ensure that the Commission receives actionable whistleblower 
information--tips indicating a high likelihood of a substantial 
securities violation--in a timely manner. More specifically, the 
definitions seek to incentivize submissions involving information that 
is unobservable to the Commission, that is not likely to be uncovered 
as part of any on-going investigations or examinations, that increases 
the probability of a successful enforcement action, and that reduces 
our enforcement costs in terms of time, effort, and resources. We 
believe that paying awards for whistleblower information that satisfies 
these criteria helps leverage the Investor Protection Fund to provide 
the maximum law enforcement benefit. By contrast, however, we do not 
believe that information provided by a whistleblower in instances where 
the Commission is about to obtain the same information in the ordinary 
course of an ongoing investigation would justify the expenditure of 
funds from the Investor Protection Fund, thus warranting the exclusion 
of such submissions from the definition of ``voluntary'' (so as to not 
qualify for an award). This will provide the additional benefit of 
incentivizing whistleblowers to report possible violations early--
before they receive a subpoena or are otherwise requested to provide 
information by the Commission or other regulatory authority.\439\
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    \437\ Rule 21F-4(a) defines ``Voluntary Submission of 
Information'' to require that the whistleblower make his or her 
submission before a request, inquiry, or demand that relates to the 
subject matter of the submission is directed to the whistleblower or 
anyone representing the whistleblower (i) by the Commission; (ii) in 
connection with an investigation, inspection, or examination by the 
PCAOB or any self-regulatory organization; or (iii) in connection 
with an investigation by the Congress, any other authority of the 
Federal government, or a state Attorney General or securities 
regulatory authority. The rule further provides that a 
whistleblower's submission will be deemed voluntary if it was 
provided after a Commission request, inquiry, or demand directed to 
the whistleblower, provided that the whistleblower had previously 
disclosed the information voluntarily to one of the other 
authorities identified in the rule. Finally, the rule provides that 
a submission is not voluntary if the whistleblower was required to 
report the information to the Commission as a result of a pre-
existing legal duty, a contractual duty that is owed to the 
Commission or to one of the other authorities set forth in the rule, 
or a duty that arises out of a judicial or administrative order.
    \438\ Rule 21F-4(c) defines ``Information that Leads to 
Successful Enforcement'' such that a whistleblower is only entitled 
to an award if one of three general standards is satisfied. The 
first standard is met if a whistleblower gave the Commission 
original information that was sufficiently specific, credible, and 
timely to cause the staff to commence an examination, open an 
investigation, reopen an investigation that the Commission had 
closed, or to inquire concerning different conduct as part of a 
current examination or investigation, and the Commission brought a 
successful judicial or administrative action based in whole or in 
part on conduct that was the subject of the whistleblower's original 
information. The second standard is met if the whistleblower gave 
the Commission original information about conduct that was already 
under examination or investigation by the Commission, or certain 
other specified law enforcement or regulatory entities, and the 
whistleblower's submission significantly contributed to the success 
of the action. Finally, the third standard permits a whistleblower 
to report original information through an entity's internal 
whistleblower, legal, or compliance procedures for reporting 
allegations of possible violations of law before or at the same time 
he reports the information to the Commission (but no later than 120 
days after the internal submission); this standard under the led-to 
definition will be satisfied if the entity thereafter provided the 
whistleblower's information to us, or provided results of an audit 
or investigation initiated in response to the whistleblower's 
report, and the information the entity provided to us satisfies 
either (1) or (2) above.
    \439\ We note that there may be an adverse incentive for would-
be whistleblowers to delay blowing the whistle on a violation in 
progress in order to allow the magnitude of the harm to increase and 
thus qualify the potential whistleblower for a larger amount. See, 
e.g., Robert Howse & Ronald J. Daniels, Rewarding Whistleblowers: 
The Costs and Benefits of an Incentive-Based Compliance Strategy, 
UNIV. PENN. SCHOLARLY COMMONS, Departmental Paper (1995) 527 (``[I]t 
is often suggested that the calibration of the amount of the reward 
from whistleblowing directly to the amount of the penalty * * * 
provides whistleblowers with an incentive to report wrongdoing later 
rather than earlier, and to do so only after the corruption has 
produced much more serious consequences, rather than disclosing 
evidence of corruption in the corporation immediately.''). However, 
we believe that other elements of the whistleblower program provide 
additional incentives for whistleblowers to report information 
early. For example, a potential whistleblower who does not report 
information early runs the risk that another person may provide the 
same information to the Commission thereby possibly denying the 
dilatory whistleblower from receiving an award.
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    The eligibility exclusions outlined in Rule 21F-4(b) under the 
definitions of ``independent knowledge'' and ``independent analysis'' 
are similarly sensitive to cost-benefit considerations. Rule 21F-4(b) 
excludes individuals in particular relations of trust from receiving 
awards in certain limited situations where, in our view, doing so on 
balance better promotes the overall enforcement of the Federal 
securities laws. For example, we believe that we can achieve more 
efficient enforcement of the securities laws by not creating incentives 
for attorneys or others to breach the attorney-client privilege by 
submitting tips disclosing privileged communications. Attorneys are 
uniquely positioned to advise clients when conduct may violate the 
Federal securities laws, and therefore they can plan a critical role in 
preventing or stopping such conduct. Accordingly, we believe that 
overall compliance with the Federal securities laws is better promoted 
by generally excluding information that is shared in confidence with 
attorneys by their clients so as to promote open attorney-client 
consultations.
    For similar reasons, we have placed certain limitations on the 
ability of particular categories of individuals to receive awards based 
on information that they learn in their professional capacity because 
of the positions that they occupy--e.g., officers, directors, trustees, 
or partners of an entity; employees with internal audit or compliance 
responsibilities; and employees or associates of either firms that are 
retained to investigate possible securities law violations, or 
independent public accountants that are retained to conduct engagements 
required by the securities laws. As a general matter, these individuals 
occupy sensitive roles that can enable them to identify and stop 
possible violations of the securities law, and their diligence in doing 
so can be an important factor that companies or other entities achieve 
compliance. Thus, we believe it is a more efficient and cost-effective 
use of the Investor Protection Fund to provide further incentive to 
these individuals to fulfill those responsibilities rather than 
allowing them to use knowledge of possible wrongdoing to obtain an 
award by reporting to the Commission. That said, we have recognized 
certain exceptions to the exclusions that, in our view, reflect 
situations where the benefit of paying an award--in terms of reducing 
the harm to the entity and investors, and in preserving our enforcement 
capacity--justifies the cost associated with a claim on the Investor 
Protection Fund.\440\
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    \440\ These exceptions, which are set forth in Rule 21F-
4(b)(4)(v), permit a submission where: (i) a report to the 
Commission is necessary to prevent substantial harm to the entity or 
investors; (ii) the entity is engaging in conduct that will impede 
our investigation; or (iii) 120 days have elapsed.
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    Additionally, with respect to employees with internal audit or 
compliance responsibilities, we believe the exclusion is appropriate 
because to do otherwise would undermine the incentives for companies 
and other entities to establish and maintain effective internal 
compliance programs. As we discussed in more detail below in Part 
(A)(7), effective internal compliance programs can in appropriate 
circumstances provide significant benefits both in terms of reducing 
the harm that entities and investors experience from securities law 
violations, and in terms of efficiently assisting our own enforcement 
efforts.
    Finally, Rule 21F-4(d) interprets the statutory term ``action'' to 
allow the Commission to aggregate the monetary sanction from two or 
more closely

[[Page 34358]]

associated judicial or administrative proceedings.\441\ From a cost 
perspective, this will result in more awards, as well as larger awards, 
being paid from the Securities Investor Protection Fund. However, we 
believe the benefits of these additional award expenditures justify 
those costs. The ability to aggregate the monetary sanctions from two 
or more closely associated Commission proceedings should enhance the 
incentive for whistleblowers to come forward in a timely manner where 
there is the potential for multiple closely-associated Commission 
proceedings that collectively may reflect more than a million dollars 
in monetary sanctions, but none of which would likely do so 
individually. Without the ability to aggregate Commission proceedings 
in these instances, a potential whistleblower might prefer to delay 
reporting possible violations until he is sufficiently confident that 
the Commission can bring at least one single proceeding that satisfies 
the covered action threshold; this could lead to unnecessary additional 
costs for entities and investors due to the delay in reporting on-going 
violations.
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    \441\ Rule 21F4(d) defines a Commission ``action'' generally as 
a single captioned judicial or administrative proceeding brought by 
the Commission. However, the rule identifies two exceptions to this 
general definition to allow payment of an award in cases where we 
may have chosen for various reasons to bring separate proceedings 
against respondents or defendants involved in the same or closely 
related conduct. The first exception to the general definition 
provides that an action will constitute two or more Commission 
proceedings arising from the same nucleus of operative facts for 
purposes of making an award under Rule 21F-10; this will permit, for 
example, considering two or more proceedings together to determine 
that there are monetary sanctions in excess of $1,000,000 and that 
an award may be paid. The second exception provides that, for 
purposes of making payments under Rule 21F-14 on a Commission action 
for which we have already made an award, we will treat as part of 
the same action any subsequent Commission proceeding that, 
individually, results in a monetary sanction of $1,000,000 or less, 
and that arises out of the same nucleus of operative facts.
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4. Eligibility for Culpable Whistleblowers
    Rule 21F-16 is designed to minimize the potential costs and enhance 
the benefits of paying a culpable whistleblower an award.\442\ On the 
one hand, we do not believe the Investor Protection Fund should pay 
culpable whistleblowers for their own misconduct or with respect to 
highly culpable whistleblowers, to also pay for the misconduct of 
entities that they directly cause. On the other hand, we also recognize 
that culpable whistleblowers can be a valuable source of information 
about undetected securities law violations. Thus, we believe the 
Investor Protection Fund should pay culpable whistleblowers for 
information that leads to monetary sanctions against other participants 
in the violation; indeed, to do otherwise could unduly reduce the 
amount of useful information the Commission receives, thereby resulting 
in some on-going violations remaining undetected to the detriment of 
investors.
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    \442\ Rule 21F-16 provides that, in determining whether the 
required $1 million threshold for an award has been satisfied, the 
Commission will not include any monetary sanctions (i) that the 
whistleblower is ordered to pay, or (ii) that an entity is ordered 
to pay if the entity's liability is based substantially on conduct 
that the whistleblower directed, planned, or initiated. The rule 
also provides that the Commission will not include any such amounts 
in the total monetary sanctions collected for purposes of 
calculating the amount of an award payment to a whistleblower.
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5. Award Amount Factor
    The revisions to final Rule 21F-6, governing the criteria used in 
determining the amount of an award, are designed to provide strong 
incentives for the whistleblower to report violations with increasing 
levels of quality, timeliness, and validity.\443\ Rule 21F-6 allows the 
Commission to set the award percentage based, among other things, on 
the significance of the information provided by the whistleblower and 
any unreasonable delay by the whistleblower in making the 
submission.\444\ Taken together, these rules provide for greater awards 
for more timely and more useful information, and reduced awards for 
whistleblowers whose dilatory or uncooperative conduct may impair our 
enforcement efforts.
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    \443\ Rule 21F-6 sets forth the factors for determining the 
award percentage. Four general factors may lead to an increase in 
the award percentage: the significance of the information provided 
by the whistleblower; the assistance provided by the whistleblower; 
the law enforcement and programmatic interests; and the 
whistleblower's voluntary participation in internal compliance 
systems. In addition, three general factors may lead to a decrease 
in the award percentage: the whistleblower's culpability or 
involvement in the matters associated with the Commission or related 
action; a substantial and unreasonable reporting delay; or, in cases 
where the whistleblower, while interacting with his entity's 
internal compliance or reporting system, interferes with or 
otherwise undermines the system's integrity.
    \444\ See Ben Depoorter & Jef De Mot, Whistleblowing: An 
Economic Analysis of the False Claims Act, 14 Sup. Ct. Econ. Rev. 
135, 158 2006 (awards should be structured to align whistleblowers 
private incentives with the public interest in timely reporting).
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    The rules also encourage whistleblowers to work with the Commission 
as we investigate and litigate enforcement actions, which should 
provide the benefit of enhanced Commission enforcement of the Federal 
securities. For example, Rule 21F-6(a)(2) provides that, in setting the 
award percentage, we will consider the assistance the whistleblower 
provided us. To complement this, Rule 21F-17(a) makes it unlawful for 
another person to take action that impedes a whistleblower's efforts to 
communicate with the Commission. Likewise, Rule 21F-17(b), by 
authorizing communications between the Commission staff and a 
whistleblower without seeking consent of the counsel of an entity with 
whom the whistleblower is employed, has the benefit of encouraging 
whistleblowers to communicate with us without the fear that their 
communications will lead to disclosure of their identity to their 
employer.\445\ We believe that these rules provide benefits by ensuring 
that whistleblowers are able to work with the Commission as it takes 
actions in response to possible securities law violations, and thus 
justify any costs on companies.
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    \445\ Rule 21F-17(b) states that if a whistleblower who is a 
director, officer, member, agent, or employee of an entity that has 
counsel has initiated communications with the Commission relating to 
a possible securities law violation, the staff is authorized to 
communicate directly with the whistleblower regarding the subject of 
the communication without seeking the consent of the entity's 
counsel.
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6. Procedures Required for a Whistleblower to Qualify for an Award
    The procedural rules adopted also further the effective 
implementation of the program.\446\ Form WB-APP requires the submission 
of information that is necessary for the Commission to determine award 
eligibility. The Commission recognizes that it will take time and 
effort on the part of whistleblowers to complete and submit the forms. 
While requiring an additional form imposes a cost on potential 
whistleblowers, determining the appropriate level of award for each 
instance of qualified whistleblower is

[[Page 34359]]

critical to successful implementation of the whistleblower rule. The 
Commission needs to collect pertinent information from the 
whistleblower to determine whether he or she should receive an award 
and, if so, in what amount. This information will need to be evaluated 
in conjunction with the Commission's enforcement action to determine 
the significance of the whistleblower's contribution. While we have 
simplified the procedures in the final rules, it is still possible that 
some prospective whistleblowers could find the procedures burdensome, 
and as a result, be deterred from coming forward to provide information 
to the Commission.
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    \446\ Rules 21F-9, 10 and 11 set forth the procedures for 
submitting information and making a claim for an award. First, Rule 
21F-9(a) provides that an individual qualifies as a whistleblower if 
he submits a Form TCR electronically through the Commission's web 
page or provides the Commission with a completed copy by mail or 
facsimile. Second, Rule 21F-9(b) provides that, to qualify for an 
award, the whistleblower must declare under penalty of perjury that 
the information in the Form TCR is true, correct, and complete to 
the best of his knowledge, information, and belief. The rules also 
require potential whistleblowers to complete a second form in the 
claims phase to establish potential eligibility for an award under 
the program. Pursuant to Rules 21F-10 and 21F-11, a whistleblower 
must complete Form WB-APP to apply for an award for a covered 
judicial or administrative action by the Commission or a related 
action.
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    The procedural elements in the rules are structured to provide a 
fair, transparent process for consideration of whistleblower award 
claims. We believe that this should help incentivize individuals to 
participate in the whistleblower award program by coming forward with 
high-quality, timely information about possible securities law 
violations.
    There is also an additional cost on whistleblowers who wish to 
participate anonymously in the whistleblower program--Rule 21F-9(c) 
requires that these whistleblowers locate and retain counsel to make a 
submission on their behalf.\447\ We recognize that this requirement 
may, in some instances, discourage potential whistleblowers from making 
submissions of valuable information. Nonetheless, we believe that on 
balance this requirement is appropriate. For example, the attorney is 
needed to serve as the point-of-contact for us when we need to elicit 
additional information, while at the same time continuing to preserve 
the confidentiality of the whistleblower. The involvement of an 
attorney can also help to protect against the possibility that 
anonymous whistleblowers are making frivolous or false submissions, can 
help the whistleblower develop and draft his submission to maximize its 
informational value to the Commission (and thus the whistleblower's 
chance of an eventual award), and can assist in verifying the 
whistleblower's eligibility for participation in the program early in 
the process.
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    \447\ The statute requires that a whistleblower who makes an 
anonymous claim for an award must be represented by counsel. Section 
21F(d)(2)(A) of the Exchange Act.
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    The 120-day ``look back'' period for whistleblowers who make 
submissions internally may also impose costs on whistleblowers in that 
it requires them to act within a certain period of time to ensure that 
their eligibility for an award under the program is not compromised. 
The Commission has set the 120-day period based on a consideration of 
those costs against the concern that a longer grace period could serve 
to delay the Commission's receipt of valuable information that could be 
used to protect investors.\448\
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    \448\ As stated in the release discussion of Rule 21F-4(b)(7), 
this 120-day period applies only to whistleblowers and does not 
prescribe for companies the appropriate time limits for reporting 
violations to the Commission, nor does it impose an obligation to 
report.
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7. Incentives for Internal Reporting
    As discussed above, we have built significant incentives into the 
whistleblower award program that we believe will encourage 
whistleblowers to report internally in appropriate circumstances. We 
believe that this approach effectuates the general statutory purpose of 
Section 21F of the Exchange Act--which is to enhance the enforcement of 
the Federal securities laws by encouraging whistleblowers to come 
forward to the Commission\449\ with quality tips regarding possible 
securities law violations--in a manner that is consistent with, and 
reflective of, cost-benefit considerations.
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    \449\ See S. Rep. No. 111-176 at 110 (2010) (``The Whistleblower 
Program aims to motivate those with inside knowledge to come forward 
and assist the Government to identify and prosecute persons who have 
violated the securities laws * * *.'').
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    Our proposed rules solicited comment on the question of how, if at 
all, to incorporate internal compliance reporting into the 
whistleblower award program. The focus of the proposed rules was on the 
principal purpose of the statute, which is ensuring that the Commission 
receives quality tips as a result of the financial incentive created by 
Section 21F of the Exchange Act.\450\
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    \450\ Our proposing release did explain, however that 
whistleblower reporting through internal compliance procedures can 
complement or otherwise appreciably enhance our enforcement efforts 
in appropriate circumstances. For instance, the subject company may 
at times be better able to distinguish between meritorious and 
frivolous claims, and may make such findings available for the 
Commission. This would be particularly true in instances where the 
reported matter entails a high level of institutional or company-
specific knowledge and/or the company has a well-functioning 
internal compliance program in place. Screening allegations through 
internal compliance programs may limit false and frivolous claims, 
provide the entity an opportunity to resolve the violation and 
report the result to the Commission, and allow the Commission to use 
its resources more efficiently.
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    In response to the proposed rules, many commenters from the 
corporate community argued that whistleblowers would divert from 
internal reporting in response to the financial incentive of a 
potential whistleblower award from the Commission.\451\ These 
commenters further argued that companies and other entities would 
experience significant costs as a result. Among the costs that they 
identified are the following: (i) Increased harm to entities and 
investors due to the delay in entities learning about on-going 
violations from the Commission rather than from internal 
whistleblowing; (ii) increased defense and litigation costs in 
responding to Commission enforcement proceedings from, among other 
things, non-meritorious whistleblower complaints that could have been 
resolved internally; (iii) increased harm to entities and investors 
when non-securities law violations go unreported to the entity. These 
commenters did not provide us with projections or estimations regarding 
either the degree to which whistleblowers would likely be diverted from 
internal reporting under our proposed rule, or the resulting costs to 
companies or other entities.\452\
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    \451\ See, e.g., letters from CAQ, Edison and GE Group. See also 
letter from the CCMC (``In the absence of an affirmative restriction 
on external reporting when effective internal compliance channels 
are available, or provision of significant incentive for using those 
internal channels, employees will face an irresistible temptation to 
go to the SEC with their report.'').
    \452\ We do note, however, that other commenters provided some 
evidence to counter the assertion that whistleblowers would be 
diverted from reporting internally in significant numbers. For 
example, one commenter cited an empirical study of the False Claims 
Act (FCA)--which requires no mandatory internal reporting--stating 
that ``the overwhelming majority of employees voluntarily utilize 
internal reporting processes, despite the fact that they were 
potentially eligible for a large reward under the FCA.'' Letter from 
NWC at 4. This study claims that ``89.7 percent of employees who 
eventually filed False Claims Act cases had made an internal report, 
despite the absence of a legal requirement that they do so.'' See 
supra discussion in footnote 232. See also letter from TAF at 22 
(``[I]t is our membership's experience that the vast majority of 
whistleblowers do, in fact, report their concerns first to either 
their superiors or compliance officers, and only avail themselves of 
statutory whistleblower programs when their concerns have been 
dismissed or unaddressed, or when they suffer retaliation.'') 
(emphasis in original). See generally Aaron S. Kesselheim et al., 
Whistle-Blowers' Experiences in Fraud Litigation Against 
Pharmaceutical Companies, 362 New England J. Med. 1832, 1834 & 1836 
(2010) (a study of qui tam cases involving pharmaceutical companies 
that showed ``[n]early all (18 of 22) insiders first tried to fix 
matters internally by talking to their superiors, filing an internal 
complaint, or both'' despite the fact that the ultimate monetary 
awards from external reporting were large, ranging from $100,000 to 
$42 million, with a median of $3 million.''); id. at 1839 
(discussing possible limitations with the study).
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    Analysis of the academic literature, although not wholly 
conclusive, provides reason to believe that a sizable percentage of 
whistleblowers who currently report internally are motivated

[[Page 34360]]

by non-monetary reasons.\453\ Thus, we anticipate that many 
whistleblowers would continue to report internally.
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    \453\ Whistleblowers are often willing to report notwithstanding 
the absence of financial incentives and the potential for costs to 
them in terms of time, money, social stigma, and a possible job 
loss. Non-monetary incentives that often motivate individuals to 
whistleblow include: (i) Cleansing the conscience, (ii) punishing 
wrongdoers (in some cases out of spite), (iii) simply ``doing the 
right thing'' for the sake of a general increase in social welfare, 
or (iv) motive for self-preservation. See Anthony Heyes & Sandeep 
Kapur, An Economic Model of Whistleblower Policy, 25 J. L. Econ. & 
Org. 157, 159 (2009) (providing a short review of academic 
literature on sociology and psychology and listing non-monetary 
motives for whistleblowing); see also Aaron S. Kesselheim et al., 
Whistle-Blower's Experience in Fraud Litigation Against 
Pharmaceutical Companies, 362 New England J. Med. 1832, 1834 (2010) 
(listing as primary motivations for qui tam lawsuit self-
preservation, justice, integrity, altruism or public safety) (cited 
by letter from NWC). Research has also shown that the likelihood of 
internal whistleblowing increases when ethical and legal compliance 
policies exist in an organization, particularly if specific 
whistleblowing procedures are in place. Richard E. Moberly, 
Sarbanes-Oxley's Structural Model to Encourage Corporate 
Whistleblowers, 2006 B.Y.U. L. Rev. 1107, 1142-43 (2006) (``A 
disclosure channel also harmonizes with a whistleblower's tendency 
to report misconduct internally--by this sense of loyalty. * * * 
[Internal reporting] fits well with the psyche of the American 
employee, whose sense of loyalty to the organization keeps her from 
reporting misconduct externally, but who may report internally if 
encouraged by the organization.'') (cited in letter from CCMC).
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    Nonetheless, we recognize that there could be a sizeable percentage 
of whistleblowers who, under our rules, could now be more motivated to 
report to the Commission in lieu of reporting internally because of the 
financial incentives created by the whistleblower program. In response 
to this possibility, we have tailored the final rules to provide 
whistleblowers who are otherwise pre-disposed to report internally, but 
who may also be affected by financial incentives, with additional 
economic incentives to continue to report internally. The final rules 
provide that a whistleblower who reports internally can collect a 
whistleblower award from the Commission if his internal report to the 
company or entity results in a successful covered action. In addition, 
the final rules provide that when determining the amount of an award, 
the Commission will consider as a plus-factor the whistleblower's 
participation in an entity's internal compliance procedures.
    We believe these provisions should substantially reduce the degree 
of diversion of whistleblower reporting from companies. Assuming that 
some significant percentage of whistleblowers who were pre-disposed to 
report internally prior to the whistleblower program are inclined to 
change their behavior in response to financial incentives, these 
provisions should mitigate any diversion effect. These provisions do so 
by providing that an internal report can be an additional path to a 
whistleblower award. Indeed, to the extent that this sub-set of 
potential whistleblowers is responsive to economic incentives, they 
should be motivated to report internally by the final rules because by 
doing so they can increase both the probability and the magnitude of a 
potential recovery. Specifically, if they submit their tip internally, 
and either simultaneously or within 120 days make the same submission 
to the Commission, it is conceivable that they can increase the 
probability of an award because they now have two paths to a recovery--
a Commission investigation, or an internal corporate investigation. 
They can increase the magnitude of a potential award because of the 
award criteria that provides a plus-factor for participation in an 
entity's internal compliance procedures.\454\
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    \454\ We believe that the final rules' financial incentives to 
report internally should be particularly attractive to 
whistleblowers who may be uncertain that their information is 
sufficiently compelling to cause the Commission staff to open an 
investigation. Where this is the case, whistleblowers may reasonably 
view internal compliance as the more likely path for an eventual 
award on the belief that an effective internal compliance process 
will investigate the information.
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    These additional financial incentives for whistleblowers to report 
internally should make it less likely that significant numbers of tips 
will be diverted from internal reporting.\455\ This in turn should 
mitigate companies' costs from lost internal whistleblower reports. 
Moreover, while some whistleblower tips may nonetheless be diverted to 
the Commission,\456\ any decrease in internal reporting should be 
offset at least in part by the fact that our final rules will 
incentivize other individuals who might not have reported internally 
prior to the whistleblower program to do so now. The financial 
incentives offered by the final rules to report internally should 
induce individuals to report who, absent any financial incentive, would 
never have reported either internally or to the Commission.\457\ As a 
result, companies and other entities should now receive some 
information related to possible violations that they would not have 
otherwise received, which in turn may allow these entities to stop on-
going violations, thereby limiting the harm to the entities and 
investors sooner than might otherwise have been the case.
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    \455\ A commenter suggested that some whistleblowers could still 
decline to report a violation internally based on the strategic 
calculation that the company could reduce the monetary sanctions 
through remediation, self-reporting, cooperation, etc., which in 
turn might reduce the whistleblower's award. See letter from CCMC. 
Although the commenter provided neither anecdotal nor empirical 
evidence to support this proposition, we think the incidence of this 
(if it should occur) would be relatively small for several reasons. 
Cf. letter from NWC at 7. First, no whistleblower can safely assume 
that his decision to bypass internal compliance will in fact lead to 
larger monetary sanctions. We will make our own assessment of the 
circumstances--indeed, as noted at pp. 92, sometimes our first step 
will be to contact the company--and good cooperation by the company 
overall, even in response to contact from the Commission staff, 
might mean that the monetary sanctions will not be any greater than 
if the whistleblower had simultaneously reported internally. Second, 
various factors in Rule 21F-6 allow us to account for a reduced 
monetary sanction by providing for an upward adjustment in the award 
determination where the internal reporting potentially resulted in a 
lower monetary sanction. Finally, to the extent there is any impact 
on whistleblower behavior, we believe it will generally mean that 
whistleblowers decide to report simultaneously, rather than availing 
themselves of the 120-day look-back period, out of concern that the 
latter course might afford companies an increased opportunity to 
take actions that could possibly result in a reduced monetary 
sanction.
    \456\ For example, we recognize that, notwithstanding the strong 
financial incentives to report internally, whistleblowers may bypass 
internal compliance procedures in cases involving clear fraud or 
other instances of serious securities law violations by senior 
management. In these cases, however, we believe the benefits of 
coming to the Commission, both in terms of our enforcement efforts 
and in terms of investors' interests, will often be quite 
significant, so as to justify any potential costs to the entity.
    \457\ See Elletta Sanrey Callahan & Terry Morehead Dworkin, Do 
Good and Get Rich: Financial Incentives for Whistleblowing and the 
False Claims Act, 37 Vill. L. Rev. 273, 284 (finding that ``money 
rewards for whistleblowing may produce the desired result of 
increasing the number of individuals willing to report activity'' 
and stating that ``financial incentives should encourage a new type 
of whistleblower to step forward''). See generally Geoffrey 
Christopher Rapp, Beyond Protection: Invigorating Incentives for 
Sarbanes-Oxley Corporate and Securities Fraud Whistleblowers, 87 
Boston Univ. L. Rev. 91, 118-26 (2007) (discussing reasons that 
insiders may not report information about ongoing corporate and 
financial fraud in the absence of significant financial incentives 
to do so).
---------------------------------------------------------------------------

    In addition to considering the benefits and costs of the final 
rules on companies and other entities, we considered the benefits and 
costs of the final rules on our own enforcement program. As we stated 
in our proposing release, internal reporting to effective compliance 
programs can provide valuable assistance to our own enforcement 
efforts. By providing a strong financial incentive for whistleblower to 
report internally when appropriate, we are leveraging the Investor 
Protection Fund established by Section 21F of the Exchange Act to 
obtain the benefit of effective internal compliance programs that can 
respond to whistleblower tips by, among other

[[Page 34361]]

things, undertaking prompt investigations that can lead to timely, 
well-documented reports of violations to the Commission.
    As alternatives to the significant incentives approach that we have 
adopted, we considered the suggestions from commenters that we adopt 
some form of a mandatory internal reporting requirement as a condition 
on whistleblowers for award eligibility. Such an approach could take 
the following forms: (1) Mandatory internal pre-reporting, where the 
whistleblower's eligibility would be conditioned on his first making a 
report internally and providing the company's internal compliance 
function a meaningful period of time to respond; or (2) mandatory 
simultaneous reporting, under which the whistleblower's eligibility is 
conditioned upon a simultaneous report to internal compliance and the 
Commission. We evaluated these alternatives by analyzing how 
whistleblowers' expected behavior might change relative to the 
significant incentives approach adopted in the final rules, and what 
those changes might mean for the resulting costs and benefits to 
companies as well as the Commission's enforcement efforts.
    We believe that either a mandatory pre-reporting or a simultaneous 
reporting requirement would not achieve an appreciable cost-benefit 
advantage over the approach we are adopting, and indeed a mandatory 
internal reporting requirement could be less advantageous because it 
could result in less overall whistleblowing. With respect to those 
whistleblowers who are already pre-disposed to report internally, a 
mandatory internal reporting requirement should have little or no net 
difference from the significant financial incentives approach that we 
are adopting.\458\ To the extent that these whistleblowers respond to 
the financial incentives of a potential whistleblower award, we would 
expect them to report internally under a mandatory internal reporting 
requirement to be eligible for a whistleblower award from us, or to 
report internally under our final rules so as to seek to increase the 
probability and magnitude of any potential award.
---------------------------------------------------------------------------

    \458\ Some commenters suggested that a mandatory internal pre-
reporting requirement could reduce the Commission's cost of 
information processing by filtering out frivolous or low quality 
tips from being submitted to us. See Americans for Limited 
Government. However, we believe other mechanisms in the final rules 
are reasonably designed to discourage frivolous submissions and thus 
reduce the attendant costs. See supra discussion in Parts IV.A (1)-
(2).
---------------------------------------------------------------------------

    The most likely difference between a mandatory regime and the 
significant financial incentives approach is with respect to the 
category of whistleblowers who, prior to the whistleblower award 
program, were not predisposed to report either internally or to the 
Commission, but who are now willing to come forward in response to a 
financial inducement. Within this category of whistleblowers, we 
believe there is some subset who would respond to the financial 
incentive offered by our final rules by reporting only to us, but who 
would not come forward either to us or to the entity if the financial 
incentive were coupled with a mandatory internal reporting 
requirement.\459\ Requiring internal reporting would have several 
adverse consequences: The Commission would lose critical information 
about some possible securities law violations, and companies and 
investors in turn would suffer as on-going violations remained 
undetected and unremedied.\460\
---------------------------------------------------------------------------

    \459\ We believe that the fear of retaliation and other forms of 
harassment, as well as other social and psychological factors, can 
have a chilling effect on certain whistleblowers who, absent a 
mandatory internal reporting requirement, would respond to the 
financial incentive offered by the whistleblower program by 
providing the Commission with information about possible securities 
law violations. A number of commenters who have experience dealing 
with whistleblowers support this assessment. See, e.g., letters from 
TAF at 21-23 (Dec. 17, 2010); POGO at 4-5 (Dec. 17, 2010); Grohovsky 
Group at 4 (Dec. 16, 2010). Our review of the academic literature 
further supports this assessment. See generally Luigi Zingales, Want 
to Stop Corporate Fraud? Pay Off Those Whistle-Blowers, AEI-
Brookings Joint Center Policy Matters (January 18, 2004); Geoffrey 
Christopher Rapp, Beyond Protection: Invigorating Incentives for 
Sarbanes-Oxley Corporate and Securities Fraud Whistleblowers, 87 
Boston Univ. L. Rev. 91; Pamela H. Bucy, Information as a Commodity 
in the Regulatory World, 39 Hous. L. Rev. 905, 948-959; Aaron S. 
Kesselheim et al., Whistle-Blowers' Experiences in Fraud Litigation 
Against Pharmaceutical Companies, 362 New England J. Med. 1832, 1834 
(2010); see also Letter from Eric Dixon LLC (Dec. 19, 2010) 
(``[W]histleblowers expose them[selves] to serious risk, including 
harm to them and their families, professional or career reprisals 
and community ostracization. Whistleblowers may also face 
retaliation from alleged wrongdoers or their associates, including 
civil suits'').
    \460\ There are additional costs that could follow from a 
mandatory internal pre-reporting requirement where the company or 
entity's internal compliance process is ineffective and thus 
unlikely to respond properly to the violation. In these situations, 
the mandatory internal pre-reporting requirement would result in 
delays before the violation can be addressed by the Commission, 
resulting in potentially increased injuries to the company and 
investors. See letter from CCMC at 6 (``Of course, when internal 
reporting systems are nonexistent or illusory, it is appropriate and 
beneficial for employees to report information of wrongdoing 
directly to the SEC.''). In other cases, mandatory internal 
reporting could result in spoliation or other interference with our 
ability to investigate.
---------------------------------------------------------------------------

    Finally, we have considered the alternative of mandating that a 
whistleblower report internally within a specified period of time after 
reporting to us, unless upon reviewing the submission we direct the 
whistleblower not to report internally. Conceptually, this approach 
could allow the Commission an opportunity to review a whistleblower's 
submission and direct him not to report internally in situations where, 
among other things, (i) we identify a basis to believe that he might in 
fact suffer retaliation, or (ii) there would be no benefit to reporting 
internally either because the entity might engage in a cover-up or the 
internal compliance program is ineffective. This approach could 
encourage some whistleblowers who might otherwise be discouraged from 
reporting to us under a pure mandatory reporting regime because these 
whistleblowers could perceive an opportunity to persuade the Commission 
that they should be excused from making the mandatory internal 
report.\461\
---------------------------------------------------------------------------

    \461\ We believe that many whistleblowers would still elect not 
to participate in the whistleblower program because of the 
uncertainty ahead of time regarding whether we would tell them not 
to report internally. As a result, we believe that it remains the 
case even under this approach that many whistleblowers would not 
report possible securities law violations to us due to the internal 
reporting requirement, and thus on-going violations would continue 
undetected resulting in further harms to entities and investors.
---------------------------------------------------------------------------

    Notwithstanding this potential benefit, however, we do not believe 
that this approach would have any significant cost-benefit advantage 
over the approach that we have adopted. In fact, this alternative 
approach would have significant disadvantages over the adopted rules. 
Simply put, for this approach to operate effectively and efficiently, 
the Commission would need to be in a position to meaningfully assess 
within a very short time--likely a few weeks--whether a whistleblower 
should be excused from reporting internally. However, the Commission is 
not in a position to make the necessary fact-intensive assessments 
identified above in a considered and reliable manner, especially within 
this short time frame.\462\ Moreover, this could

[[Page 34362]]

divert limited resources from the primary objective of investigating 
allegations of wrongdoing.
---------------------------------------------------------------------------

    \462\ In contrast to any of the alternative mandatory reporting 
regimes, we believe that the financial incentives approach has the 
additional advantage that it allows whistleblowers to select the 
proper reporting procedures under the specific circumstances. 
Whistleblowers can balance the potential increase in the probability 
and magnitude of an award by participating in an effective internal 
compliance mechanism, against the particular risks that may result 
from doing so, which could include retaliation, loss of anonymity 
(for those companies that may not have effective anonymous reporting 
procedures), delay due to an ineffective or questionable internal 
compliance mechanism, and destruction of evidence based on the 
nature of the allegations or the corporate environment. On balance, 
we believe that, from a law-enforcement perspective, overall 
efficiency is better promoted by allowing whistleblowers to make 
this assessment on a case-by-case basis.
---------------------------------------------------------------------------

    As stated earlier, Congress did not include an internal reporting 
requirement in the statute, which is modeled upon the DOJ and IRS 
whistleblower program.\463\ Instead, Congress enacted a requirement 
that provides financial incentives and employment retaliation 
protections for reporting directly to the Commission. Internal 
compliance programs are valuable, and under appropriate circumstances, 
these rules provide financial encouragement for whistleblowers to 
utilize those programs. At the same time, however, internal compliance 
programs cannot serve as adequate substitutes for our obligation to 
identify and remedy violations of the Federal securities laws. In 
addition, there are circumstances where whistleblowers may have 
legitimate reasons for not wanting to report information internally, 
even if the company provides an avenue for anonymous reporting. For 
these reasons, the adopted approach encourages the whistleblower to 
report allegations internally, yet ultimately and appropriately leaves 
that decision to the whistleblower.
---------------------------------------------------------------------------

    \463\ See S. Rep. No. 111-176 at 111 (2010).
---------------------------------------------------------------------------

B. Additional Considerations of Competition, Efficiency, and Capital 
Formation

    Section 23(a)(2) \464\ of the Securities Exchange Act of 1934 
requires the Commission, in promulgating rules under the Exchange Act, 
to consider the impact that any rule may have on competition and 
prohibits the Commission from adopting any rule that would impose a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act. Further, Section 3(f) of the Exchange 
Act \465\ requires the Commission, when engaging in rulemaking where it 
is required to consider or determine whether an action is necessary or 
appropriate in the public interest, to consider, in addition to the 
protection of investors, whether the action will promote efficiency, 
competition, and capital formation.
---------------------------------------------------------------------------

    \464\ 15 U.S.C. 78w(a)(2).
    \465\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    We expect that the impact of the final rules on capital formation 
and efficiency will be generally positive. As discussed above, the 
final rules are structured to encourage the submission of more 
actionable information both to the Commission and to internal 
compliance programs regarding possible securities law violations. This 
will have several positive effects on capital formation. First, to the 
extent that more effective enforcement leads to earlier detection of 
violations and increased deterrence of potential future violations, 
this should assist in a more efficient allocation of investment funds. 
Serious securities frauds, for example, can cause inefficiencies in the 
economy by diverting investment funds from more legitimate, productive 
uses. Second, the deterrent effect of our rules should result in a 
higher level of investors' trust in the securities markets. We believe 
that this increased investor trust in the fairness of the market will 
promote lower capital costs as more investment funds enter the market, 
and as investors generally demand a lower risk premium due to a reduced 
likelihood of securities fraud.\466\ This, too, should promote the 
efficient allocation of capital formation.
---------------------------------------------------------------------------

    \466\ If investors fear theft, fraud, manipulation, insider 
trading, or conflicted investment advice, their trust in the markets 
will be low, both in the primary market for issuance or in the 
secondary market for trading. This would increase the cost of 
raising capital, which would impair capital formation--in the sense 
that it will be less than it would or should be if rules against 
such abuses were in effect and properly enforced and obeyed.
---------------------------------------------------------------------------

    In addition, there will be certain gains and losses in efficiency 
due to our rules, most of which were discussed in our cost-benefit 
analysis. As stated above, we believe that the final rules, by 
encouraging internal reporting without mandating it, allow 
whistleblowers to balance the potential increase in the probability and 
magnitude of an award by participating in an effective internal 
compliance mechanism against the particular risks that may result from 
doing so. By allowing potential whistleblowers to make this assessment 
and encouraging them to report internally in situations where their 
tips will be appropriately addressed, the final rules should promote 
efficiency in how violations are reported and resolved. Furthermore, 
issuers who previously may have underinvested in internal compliance 
programs may respond to our rules by making improvements in corporate 
governance generally,\467\ and strengthening their internal compliance 
programs in particular. While these improvements will involve costs on 
companies, there should be an overall increased efficiency from the 
perspective of investors to the extent that these companies achieve a 
more optimal investment in these programs.
---------------------------------------------------------------------------

    \467\ See Robert M. Bowen et al., ``Whistle-Blowing: Target Firm 
Characteristics and Economic Consequences,'' working paper (2009) at 
29, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=890750 (cited in letter from CCMC) (documenting that firms 
respond to external whistleblowing with subsequent governance 
changes).
---------------------------------------------------------------------------

    We do not believe the final rules will impose undue burdens on 
competition and, indeed, we believe the rules may have a potential pro-
competitive effect. Specifically, by increasing the likelihood that 
misconduct will be detected, of securities law violations, the rules 
should reduce the unfair competitive advantages that some companies can 
achieve by engaging in undetected violations.
    We are aware of the possible concern that smaller companies may 
bear a disproportionately greater cost under the final rules than 
larger companies. We do not believe this is likely for several reasons, 
however. First, we believe that the relative likelihood that any 
particular employee will blow the whistle on a possible violation 
should not significantly vary between smaller and larger companies, and 
thus we believe that the incidence of whistleblowing and the resulting 
costs borne by companies should be relatively consistent on a per-
employee basis irrespective of a company's size. Second, because the 
final rules do not dictate the structure of effective compliance 
processes for internal reporting by employees under Rule 21F-4(c)(iii), 
including allowing companies to utilize upward reporting practices, we 
believe that companies of all sizes should be able to design cost-
effective processes that meet their particular needs based on company 
size and structure. Overall, we do not believe these effects will 
result in undue burdens on competition.

V. Regulatory Flexibility Act Certification

    In our proposing release, we certified that a regulatory 
flexibility analysis is not required because the persons that would be 
subject to the rules--individuals--are not ``small entities'' for 
purposes of the Regulatory Flexibility Act and the rules therefore 
would not have a significant economic impact on a substantial number of 
small entities. One commenter disagreed with this conclusion, 
contending that our proposal not to require mandatory internal 
reporting will cause small businesses to experience significant costs 
and disruptions.\468\ Notwithstanding the possibility of such indirect 
impacts, we disagree with the comment's conclusion that this means a

[[Page 34363]]

Regulatory Flexibility Act analysis is required. These rules do not 
directly affect or impose responsibilities on small entities.\469\
---------------------------------------------------------------------------

    \468\ See letter from Association for Corporate Counsel.
    \469\ In advancing the argument, the commenter relies on 
Aeronautical Repair Station Association v. Federal Aviation 
Administration, 494 F.3d 161 (DC Cir. 2007). This case is 
inapposite, however, because there the agency's own rulemaking 
release expressly stated that the rule imposed responsibilities 
directly on certain small business contractors. The court reaffirmed 
its prior holdings that the Regulatory Flexibility Act limits its 
application to small entities ``which will be subject to the 
proposed regulation--that is, those small entities to which the 
proposed rule will apply.'' Id. at 176 (emphasis and internal 
quotations omitted). See also Cement Kiln Recycling Coal v. EPA, 255 
F. 3d 855, 869 (DC Cir. 2001).
---------------------------------------------------------------------------

VI. Statutory Authority

    The Commission is adopting rules and forms contained in this 
document under the authority set forth in Sections 3(b), 21F and 23(a) 
of the Exchange Act.

List of Subjects in 17 CFR Parts 240 and 249

    Securities.

Text of the Amendments

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is amended as follows.

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

0
1. The authority citation for part 240 is amended by adding the 
following citation in numerical order to read as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78-i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 78q, 
78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 
80b-3, 80b-4, 80b-11, and 7201 et seq.; 18 U.S.C. 1350; and 12 
U.S.C. 5221(e)(3), unless otherwise noted.
* * * * *
    Section 240.21F is also issued under Pub. L. 111-203, Sec.  
922(a), 124 Stat. 1841 (2010).
* * * * *

0
2. Add an undesignated center heading and Sec. Sec.  240.21F-1 through 
Sec.  240.21F-17 to read as follows:

Securities Whistleblower Incentives and Protections

Sec.
240.21F-1 General.
240.21F-2 Whistleblower status and retaliation protections.
240.21F-3 Payment of award.
240.21F-4 Other definitions.
240.21F-5 Amount of award.
240.21F-6 Criteria for determining amount of award.
240.21F-7 Confidentiality of submissions.
240.21F-8 Eligibility.
240.21F-9 Procedures for submitting original information.
240.21F-10 Procedures for making a claim for a whistleblower award 
in SEC actions that result in monetary sanctions in excess of 
$1,000,000
240.21F-11 Procedures for determining awards based upon a related 
action.
240.21F-12 Materials that may be used as the basis for an award 
determination and that may comprise the record on appeal.
240.21F-13 Appeals.
240.21F-14 Procedures applicable to the payment of awards.
240.21F-15 No amnesty.
240.21F-16 Awards to whistleblowers who engage in culpable conduct.
240.21F-17 Staff communications with individuals reporting possible 
securities law violations.
* * * * *

Sec.  240.21F-1  General.

    Section 21F of the Securities Exchange Act of 1934 (``Exchange 
Act'') (15 U.S.C. 78u-6), entitled ``Securities Whistleblower 
Incentives and Protection,'' requires the Securities and Exchange 
Commission (``Commission'') to pay awards, subject to certain 
limitations and conditions, to whistleblowers who provide the 
Commission with original information about violations of the Federal 
securities laws. These rules describe the whistleblower program that 
the Commission has established to implement the provisions of Section 
21F, and explain the procedures you will need to follow in order to be 
eligible for an award. You should read these procedures carefully 
because the failure to take certain required steps within the time 
frames described in these rules may disqualify you from receiving an 
award for which you otherwise may be eligible. Unless expressly 
provided for in these rules, no person is authorized to make any offer 
or promise, or otherwise to bind the Commission with respect to the 
payment of any award or the amount thereof. The Securities and Exchange 
Commission's Office of the Whistleblower administers our whistleblower 
program. Questions about the program or these rules should be directed 
to the SEC Office of the Whistleblower, 100 F Street, NE., Washington, 
DC 20549-5631.

Sec.  240.21F-2  Whistleblower status and retaliation protection.

    (a) Definition of a whistleblower. (1) You are a whistleblower if, 
alone or jointly with others, you provide the Commission with 
information pursuant to the procedures set forth in Sec.  240.21F-9(a) 
of this chapter, and the information relates to a possible violation of 
the Federal securities laws (including any rules or regulations 
thereunder) that has occurred, is ongoing, or is about to occur. A 
whistleblower must be an individual. A company or another entity is not 
eligible to be a whistleblower.
    (2) To be eligible for an award, you must submit original 
information to the Commission in accordance with the procedures and 
conditions described in Sec. Sec.  240.21F-4, 240.21F-8, and 240.21F-9 
of this chapter.
    (b) Prohibition against retaliation: (1) For purposes of the anti-
retaliation protections afforded by Section 21F(h)(1) of the Exchange 
Act (15 U.S.C. 78u-6(h)(1)), you are a whistleblower if:
    (i) You possess a reasonable belief that the information you are 
providing relates to a possible securities law violation (or, where 
applicable, to a possible violation of the provisions set forth in 18 
U.S.C. 1514A(a)) that has occurred, is ongoing, or is about to occur, 
and;
    (ii) You provide that information in a manner described in Section 
21F(h)(1)(A) of the Exchange Act (15 U.S.C. 78u-6(h)(1)(A)).
    (iii) The anti-retaliation protections apply whether or not you 
satisfy the requirements, procedures and conditions to qualify for an 
award.
    (2) Section 21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1)), 
including any rules promulgated thereunder, shall be enforceable in an 
action or proceeding brought by the Commission.

Sec.  240.21F-3  Payment of awards.

    (a) Commission actions: Subject to the eligibility requirements 
described in Sec. Sec.  240.21F-2, 240.21F-8, and 240.21F-16 of this 
chapter, the Commission will pay an award or awards to one or more 
whistleblowers who:
    (1) Voluntarily provide the Commission
    (2) With original information
    (3) That leads to the successful enforcement by the Commission of a 
Federal court or administrative action
    (4) In which the Commission obtains monetary sanctions totaling 
more than $1,000,000.

    Note to paragraph (a): The terms voluntarily, original 
information, leads to successful enforcement, action, and monetary 
sanctions are defined in Sec.  240.21F-4 of this chapter.

    (b) Related actions: The Commission will also pay an award based on 
amounts collected in certain related actions.
    (1) A related action is a judicial or administrative action that is 
brought by:
    (i) The Attorney General of the United States;

[[Page 34364]]

    (ii) An appropriate regulatory authority;
    (iii) A self-regulatory organization; or
    (iv) A state attorney general in a criminal case, and is based on 
the same original information that the whistleblower voluntarily 
provided to the Commission, and that led the Commission to obtain 
monetary sanctions totaling more than $1,000,000.

    Note to paragraph (b)(1): The terms appropriate regulatory 
authority and self-regulatory organization are defined in Sec.  
240.21F-4 of this chapter.

    (2) In order for the Commission to make an award in connection with 
a related action, the Commission must determine that the same original 
information that the whistleblower gave to the Commission also led to 
the successful enforcement of the related action under the same 
criteria described in these rules for awards made in connection with 
Commission actions. The Commission may seek assistance and confirmation 
from the authority bringing the related action in making this 
determination. The Commission will deny an award in connection with the 
related action if:
    (i) The Commission determines that the criteria for an award are 
not satisfied; or
    (ii) The Commission is unable to make a determination because the 
Office of the Whistleblower could not obtain sufficient and reliable 
information that could be used as the basis for an award determination 
pursuant to Sec.  240.21F-12(a) of this chapter. Additional procedures 
apply to the payment of awards in related actions. These procedures are 
described in Sec. Sec.  240.21F-11 and 240.21F-14 of this chapter.
    (3) The Commission will not make an award to you for a related 
action if you have already been granted an award by the Commodity 
Futures Trading Commission (``CFTC'') for that same action pursuant to 
its whistleblower award program under Section 23 of the Commodity 
Exchange Act (7 U.S.C. 26). Similarly, if the CFTC has previously 
denied an award to you in a related action, you will be precluded from 
relitigating any issues before the Commission that the CFTC resolved 
against you as part of the award denial.

Sec.  240.21F-4  Other definitions.

    (a) Voluntary submission of information. (1) Your submission of 
information is made voluntarily within the meaning of Sec. Sec.  
240.21F-1 through 240.21F-17 of this chapter if you provide your 
submission before a request, inquiry, or demand that relates to the 
subject matter of your submission is directed to you or anyone 
representing you (such as an attorney):
    (i) By the Commission;
    (ii) In connection with an investigation, inspection, or 
examination by the Public Company Accounting Oversight Board, or any 
self-regulatory organization; or
    (iii) In connection with an investigation by Congress, any other 
authority of the Federal government, or a state Attorney General or 
securities regulatory authority.
    (2) If the Commission or any of these other authorities direct a 
request, inquiry, or demand as described in paragraph (a)(1) of this 
section to you or your representative first, your submission will not 
be considered voluntary, and you will not be eligible for an award, 
even if your response is not compelled by subpoena or other applicable 
law. However, your submission of information to the Commission will be 
considered voluntary if you voluntarily provided the same information 
to one of the other authorities identified above prior to receiving a 
request, inquiry, or demand from the Commission.
    (3) In addition, your submission will not be considered voluntary 
if you are required to report your original information to the 
Commission as a result of a pre-existing legal duty, a contractual duty 
that is owed to the Commission or to one of the other authorities set 
forth in paragraph (a)(1) of this section, or a duty that arises out of 
a judicial or administrative order.
    (b) Original information. (1) In order for your whistleblower 
submission to be considered original information, it must be:
    (i) Derived from your independent knowledge or independent 
analysis;
    (ii) Not already known to the Commission from any other source, 
unless you are the original source of the information;
    (iii) 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 you are a source of the 
information; and
    (iv) Provided to the Commission for the first time after July 21, 
2010 (the date of enactment of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act).
    (2) Independent knowledge means factual information in your 
possession that is not derived from publicly available sources. You may 
gain independent knowledge from your experiences, communications and 
observations in your business or social interactions.
    (3) Independent analysis means your own analysis, whether done 
alone or in combination with others. Analysis means your examination 
and evaluation of information that may be publicly available, but which 
reveals information that is not generally known or available to the 
public.
    (4) The Commission will not consider information to be derived from 
your independent knowledge or independent analysis in any of the 
following circumstances:
    (i) If you obtained the information through a communication that 
was subject to the attorney-client privilege, unless disclosure of that 
information would otherwise be permitted by an attorney pursuant to 
Sec.  205.3(d)(2) of this chapter, the applicable state attorney 
conduct rules, or otherwise;
    (ii) If you obtained the information in connection with the legal 
representation of a client on whose behalf you or your employer or firm 
are providing services, and you seek to use the information to make a 
whistleblower submission for your own benefit, unless disclosure would 
otherwise be permitted by an attorney pursuant to Sec.  205.3(d)(2) of 
this chapter, the applicable state attorney conduct rules, or 
otherwise; or
    (iii) In circumstances not covered by paragraphs (b)(4)(i) or 
(b)(4)(ii) of this section, if you obtained the information because you 
were:
    (A) An officer, director, trustee, or partner of an entity and 
another person informed you of allegations of misconduct, or you 
learned the information in connection with the entity's processes for 
identifying, reporting, and addressing possible violations of law;
    (B) An employee whose principal duties involve compliance or 
internal audit responsibilities, or you were employed by or otherwise 
associated with a firm retained to perform compliance or internal audit 
functions for an entity;
    (C) Employed by or otherwise associated with a firm retained to 
conduct an inquiry or investigation into possible violations of law; or
    (D) An employee of, or other person associated with, a public 
accounting firm, if you obtained the information through the 
performance of an engagement required of an independent public 
accountant under the Federal securities laws (other than an audit 
subject to Sec.  240.21F-8(c)(4) of this chapter), and that information 
related to a violation by the engagement client or the client's 
directors, officers or other employees.

[[Page 34365]]

    (iv) If you obtained the information by a means or in a manner that 
is determined by a United States court to violate applicable Federal or 
state criminal law; or
    (v) Exceptions. Paragraph (b)(4)(iii) of this section shall not 
apply if:
    (A) You have a reasonable basis to believe that disclosure of the 
information to the Commission is necessary to prevent the relevant 
entity from engaging in conduct that is likely to cause substantial 
injury to the financial interest or property of the entity or 
investors;
    (B) You have a reasonable basis to believe that the relevant entity 
is engaging in conduct that will impede an investigation of the 
misconduct; or
    (C) At least 120 days have elapsed since you provided the 
information to the relevant entity's audit committee, chief legal 
officer, chief compliance officer (or their equivalents), or your 
supervisor, or since you received the information, if you received it 
under circumstances indicating that the entity's audit committee, chief 
legal officer, chief compliance officer (or their equivalents), or your 
supervisor was already aware of the information.
    (vi) If you obtained the information from a person who is subject 
to this section, unless the information is not excluded from that 
person's use pursuant to this section, or you are providing the 
Commission with information about possible violations involving that 
person.
    (5) The Commission will consider you to be an original source of 
the same information that we obtain from another source if the 
information satisfies the definition of original information and the 
other source obtained the information from you or your representative. 
In order to be considered an original source of information that the 
Commission receives from Congress, any other authority of the Federal 
government, a state Attorney General or securities regulatory 
authority, any self-regulatory organization, or the Public Company 
Accounting Oversight Board, you must have voluntarily given such 
authorities the information within the meaning of these rules. You must 
establish your status as the original source of information to the 
Commission's satisfaction. In determining whether you are the original 
source of information, the Commission may seek assistance and 
confirmation from one of the other authorities described above, or from 
another entity (including your employer), in the event that you claim 
to be the original source of information that an authority or another 
entity provided to the Commission.
    (6) If the Commission already knows some information about a matter 
from other sources at the time you make your submission, and you are 
not an original source of that information under paragraph (b)(5) of 
this section, the Commission will consider you an original source of 
any information you provide that is derived from your independent 
knowledge or analysis and that materially adds to the information that 
the Commission already possesses.
    (7) If you provide information to the Congress, any other authority 
of the Federal government, a state Attorney General or securities 
regulatory authority, any self-regulatory organization, or the Public 
Company Accounting Oversight Board, or to an entity's internal 
whistleblower, legal, or compliance procedures for reporting 
allegations of possible violations of law, and you, within 120 days, 
submit the same information to the Commission pursuant to Sec.  
240.21F-9 of this chapter, as you must do in order for you to be 
eligible to be considered for an award, then, for purposes of 
evaluating your claim to an award under Sec. Sec.  240.21F-10 and 
240.21F-11 of this chapter, the Commission will consider that you 
provided information as of the date of your original disclosure, report 
or submission to one of these other authorities or persons. You must 
establish the effective date of any prior disclosure, report, or 
submission, to the Commission's satisfaction. The Commission may seek 
assistance and confirmation from the other authority or person in 
making this determination.
    (c) Information that leads to successful enforcement. The 
Commission will consider that you provided original information that 
led to the successful enforcement of a judicial or administrative 
action in any of the following circumstances:
    (1) You gave the Commission original information that was 
sufficiently specific, credible, and timely to cause the staff to 
commence an examination, open an investigation, reopen an investigation 
that the Commission had closed, or to inquire concerning different 
conduct as part of a current examination or investigation, and the 
Commission brought a successful judicial or administrative action based 
in whole or in part on conduct that was the subject of your original 
information; or
    (2) You gave the Commission original information about conduct that 
was already under examination or investigation by the Commission, the 
Congress, any other authority of the Federal government, a state 
Attorney General or securities regulatory authority, any self-
regulatory organization, or the PCAOB (except in cases where you were 
an original source of this information as defined in paragraph (b)(4) 
of this section), and your submission significantly contributed to the 
success of the action.
    (3) You reported original information through an entity's internal 
whistleblower, legal, or compliance procedures for reporting 
allegations of possible violations of law before or at the same time 
you reported them to the Commission; the entity later provided your 
information to the Commission, or provided results of an audit or 
investigation initiated in whole or in part in response to information 
you reported to the entity; and the information the entity provided to 
the Commission satisfies either paragraph (c)(1) or (c)(2) of this 
section. Under this paragraph (c)(3), you must also submit the same 
information to the Commission in accordance with the procedures set 
forth in Sec.  240.21F-9 within 120 days of providing it to the entity.
    (d) An action generally means a single captioned judicial or 
administrative proceeding brought by the Commission. Notwithstanding 
the foregoing:
    (1) For purposes of making an award under Sec.  240.21F-10 of this 
chapter, the Commission will treat as a Commission action two or more 
administrative or judicial proceedings brought by the Commission if 
these proceedings arise out of the same nucleus of operative facts; or
    (2) For purposes of determining the payment on an award under Sec.  
240.21F-14 of this chapter, the Commission will deem as part of the 
Commission action upon which the award was based any subsequent 
Commission proceeding that, individually, results in a monetary 
sanction of $1,000,000 or less, and that arises out of the same nucleus 
of operative facts.
    (e) Monetary sanctions means any money, including penalties, 
disgorgement, and interest, ordered to be paid and any money deposited 
into a disgorgement fund or other fund pursuant to Section 308(b) of 
the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)) as a result of a 
Commission action or a related action.
    (f) Appropriate regulatory agency means the Commission, the 
Comptroller of the Currency, the Board of Governors of the Federal 
Reserve System, the Federal Deposit Insurance Corporation, the Office 
of Thrift Supervision, and any other agencies that may be defined as 
appropriate regulatory agencies under

[[Page 34366]]

Section 3(a)(34) of the Exchange Act (15 U.S.C. 78c(a)(34)).
    (g) Appropriate regulatory authority means an appropriate 
regulatory agency other than the Commission.
    (h) Self-regulatory organization means any national securities 
exchange, registered securities association, registered clearing 
agency, the Municipal Securities Rulemaking Board, and any other 
organizations that may be defined as self-regulatory organizations 
under Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26)).

Sec.  240.21F-5  Amount of award.

    (a) The determination of the amount of an award is in the 
discretion of the Commission.
    (b) If all of the conditions are met for a whistleblower award in 
connection with a Commission action or a related action, the Commission 
will then decide the percentage amount of the award applying the 
criteria set forth in Sec.  240.21F-6 of this chapter and pursuant to 
the procedures set forth in Sec. Sec.  240.21F-10 and 240.21F-11 of 
this chapter. The amount will be at least 10 percent and no more than 
30 percent of the monetary sanctions that the Commission and the other 
authorities are able to collect. The percentage awarded in connection 
with a Commission action may differ from the percentage awarded in 
connection with a related action.
    (c) If the Commission makes awards to more than one whistleblower 
in connection with the same action or related action, the Commission 
will determine an individual percentage award for each whistleblower, 
but in no event will the total amount awarded to all whistleblowers in 
the aggregate be less than 10 percent or greater than 30 percent of the 
amount the Commission or the other authorities collect.

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

    In exercising its discretion to determine the appropriate award 
percentage, the Commission may consider the following factors in 
relation to the unique facts and circumstances of each case, and may 
increase or decrease the award percentage based on its analysis of 
these factors. In the event that awards are determined for multiple 
whistleblowers in connection an action, these factors will be used to 
determine the relative allocation of awards among the whistleblowers.
    (a) Factors that may increase the amount of a whistleblower's 
award. In determining whether to increase the amount of an award, the 
Commission will consider the following factors, which are not listed in 
order of importance.
    (1) Significance of the information provided by the whistleblower. 
The Commission will assess the significance of the information provided 
by a whistleblower to the success of the Commission action or related 
action. In considering this factor, the Commission may take into 
account, among other things:
    (i) The nature of the information provided by the whistleblower and 
how it related to the successful enforcement action, including whether 
the reliability and completeness of the information provided to the 
Commission by the whistleblower resulted in the conservation of 
Commission resources;
    (ii) The degree to which the information provided by the 
whistleblower supported one or more successful claims brought in the 
Commission or related action.
    (2) Assistance provided by the whistleblower. The Commission will 
assess the degree of assistance provided by the whistleblower and any 
legal representative of the whistleblower in the Commission action or 
related action. In considering this factor, the Commission may take 
into account, among other things:
    (i) Whether the whistleblower provided ongoing, extensive, and 
timely cooperation and assistance by, for example, helping to explain 
complex transactions, interpreting key evidence, or identifying new and 
productive lines of inquiry;
    (ii) The timeliness of the whistleblower's initial report to the 
Commission or to an internal compliance or reporting system of business 
organizations committing, or impacted by, the securities violations, 
where appropriate;
    (iii) The resources conserved as a result of the whistleblower's 
assistance;
    (iv) Whether the whistleblower appropriately encouraged or 
authorized others to assist the staff of the Commission who might 
otherwise not have participated in the investigation or related action;
    (v) 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; and
    (vi) Any unique hardships experienced by the whistleblower as a 
result of his or her reporting and assisting in the enforcement action.
    (3) Law enforcement interest. The Commission will assess its 
programmatic interest in deterring violations of the securities laws by 
making awards to whistleblowers who provide information that leads to 
the successful enforcement of such laws. In considering this factor, 
the Commission may take into account, among other things:
    (i) The degree to which an award enhances the Commission's ability 
to enforce the Federal securities laws and protect investors; and
    (ii) The degree to which an award encourages the submission of high 
quality information from whistleblowers by appropriately rewarding 
whistleblowers' submission of significant information and assistance, 
even in cases where the monetary sanctions available for collection are 
limited or potential monetary sanctions were reduced or eliminated by 
the Commission because an entity self-reported a securities violation 
following the whistleblower's related internal disclosure, report, or 
submission.
    (iii) Whether the subject matter of the action is a Commission 
priority, whether the reported misconduct involves regulated entities 
or fiduciaries, whether the whistleblower exposed an industry-wide 
practice, the type and severity of the securities violations, the age 
and duration of misconduct, the number of violations, and the isolated, 
repetitive, or ongoing nature of the violations; and
    (iv) 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.
    (4) Participation in internal compliance systems. The Commission 
will assess whether, and the extent to which, the whistleblower and any 
legal representative of the whistleblower participated in internal 
compliance systems. In considering this factor, the Commission may take 
into account, among other things:
    (i) Whether, and the extent to which, a whistleblower reported the 
possible securities violations through internal whistleblower, legal or 
compliance procedures before, or at the same time as, reporting them to 
the Commission; and
    (ii) Whether, and the extent to which, a whistleblower assisted any 
internal investigation or inquiry concerning the reported securities 
violations.
    (b) Factors that may decrease the amount of a whistleblower's 
award. In determining whether to decrease the amount of an award, the 
Commission

[[Page 34367]]

will consider the following factors, which are not listed in order of 
importance.
    (1) Culpability. The Commission will assess the culpability or 
involvement of the whistleblower in matters associated with the 
Commission's action or related actions. In considering this factor, the 
Commission may take into account, among other things:
    (i) The whistleblower's role in the securities violations;
    (ii) The whistleblower's education, training, experience, and 
position of responsibility at the time the violations occurred;
    (iii) Whether the whistleblower acted with scienter, both generally 
and in relation to others who participated in the violations;
    (iv) Whether the whistleblower financially benefitted from the 
violations;
    (v) Whether the whistleblower is a recidivist;
    (vi) The egregiousness of the underlying fraud committed by the 
whistleblower; and
    (vii) Whether the whistleblower knowingly interfered with the 
Commission's investigation of the violations or related enforcement 
actions.
    (2) Unreasonable reporting delay. The Commission will assess 
whether the whistleblower unreasonably delayed reporting the securities 
violations. In considering this factor, the Commission may take into 
account, among other things:
    (i) Whether the whistleblower was aware of the relevant facts but 
failed to take reasonable steps to report or prevent the violations 
from occurring or continuing;
    (ii) Whether the whistleblower was aware of the relevant facts but 
only reported them after learning about a related inquiry, 
investigation, or enforcement action; and
    (iii) Whether there was a legitimate reason for the whistleblower 
to delay reporting the violations.
    (3) Interference with internal compliance and reporting systems. 
The Commission will assess, in cases where the whistleblower interacted 
with his or her entity's internal compliance or reporting system, 
whether the whistleblower undermined the integrity of such system. In 
considering this factor, the Commission will take into account whether 
there is evidence provided to the Commission that the whistleblower 
knowingly:
    (i) Interfered with an entity's established legal, compliance, or 
audit procedures to prevent or delay detection of the reported 
securities violation;
    (ii) Made any material false, fictitious, or fraudulent statements 
or representations that hindered an entity's efforts to detect, 
investigate, or remediate the reported securities violations; and
    (iii) Provided any false writing or document knowing the writing or 
document contained any false, fictitious or fraudulent statements or 
entries that hindered an entity's efforts to detect, investigate, or 
remediate the reported securities violations.

Sec.  240.21F-7  Confidentiality of submissions.

    (a) Section 21F(h)(2) of the Exchange Act (15 U.S.C. 78u-6(h)(2)) 
requires that the Commission not disclose information that could 
reasonably be expected to reveal the identity of a whistleblower, 
except that the Commission may disclose such information in the 
following circumstances:
    (1) When disclosure is required to a defendant or respondent in 
connection with a Federal court or administrative action that the 
Commission files or in another public action or proceeding that is 
filed by an authority to which we provide the information, as described 
below;
    (2) When the Commission determines that it is necessary to 
accomplish the purposes of the Exchange Act (15 U.S.C. 78a) and to 
protect investors, it may provide your information to the Department of 
Justice, an appropriate regulatory authority, 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. Each of these entities other than foreign 
securities and law enforcement authorities is subject to the 
confidentiality requirements set forth in Section 21F(h) of the 
Exchange Act (15 U.S.C. 78u-6(h)). The Commission will determine what 
assurances of confidentiality it deems appropriate in providing such 
information to foreign securities and law enforcement authorities.
    (3) The Commission may make disclosures in accordance with the 
Privacy Act of 1974 (5 U.S.C. 552a).
    (b) You may submit information to the Commission anonymously. If 
you do so, however, you must also do the following:
    (1) You must have an attorney represent you in connection with both 
your submission of information and your claim for an award, and your 
attorney's name and contact information must be provided to the 
Commission at the time you submit your information;
    (2) You and your attorney must follow the procedures set forth in 
Sec.  240.21F-9 of this chapter for submitting original information 
anonymously; and
    (3) Before the Commission will pay any award to you, you must 
disclose your identity to the Commission and your identity must be 
verified by the Commission as set forth in Sec.  240.21F-10 of this 
chapter.

Sec.  240.21F-8  Eligibility.

    (a) To be eligible for a whistleblower award, you must give the 
Commission information in the form and manner that the Commission 
requires. The procedures for submitting information and making a claim 
for an award are described in Sec.  240.21F-9 through Sec.  240.21F-11 
of this chapter. You should read these procedures carefully because you 
need to follow them in order to be eligible for an award, except that 
the Commission may, in its sole discretion, waive any of these 
procedures based upon a showing of extraordinary circumstances.
    (b) In addition to any forms required by these rules, the 
Commission may also require that you provide certain additional 
information. You may be required to:
    (1) Provide explanations and other assistance in order that the 
staff may evaluate and use the information that you submitted;
    (2) Provide all additional information in your possession that is 
related to the subject matter of your submission in a complete and 
truthful manner, through follow-up meetings, or in other forms that our 
staff may agree to;
    (3) Provide testimony or other evidence acceptable to the staff 
relating to whether you are eligible, or otherwise satisfy any of the 
conditions, for an award; and
    (4) Enter into a confidentiality agreement in a form acceptable to 
the Office of the Whistleblower, covering any non-public information 
that the Commission provides to you, and including a provision that a 
violation of the agreement may lead to your ineligibility to receive an 
award.
    (c) You are not eligible to be considered for an award if you do 
not satisfy the requirements of paragraphs (a) and (b) of this section. 
In addition, you are not eligible if:
    (1) You are, or were at the time you acquired the original 
information provided to the Commission, a member, officer, or employee 
of the Commission, the Department of Justice, an appropriate regulatory 
agency, a self-regulatory organization, the Public

[[Page 34368]]

Company Accounting Oversight Board, or any law enforcement 
organization;
    (2) You are, or were at the time you acquired the original 
information provided to the Commission, a member, officer, or employee 
of a foreign government, any political subdivision, department, agency, 
or instrumentality of a foreign government, or any other foreign 
financial regulatory authority as that term is defined in Section 
3(a)(52) of the Exchange Act (15 U.S.C. 78c(a)(52));
    (3) You are convicted of a criminal violation that is related to 
the Commission action or to a related action (as defined in Sec.  
240.21F-4 of this chapter) for which you otherwise could receive an 
award;
    (4) You obtained the original information that you gave the 
Commission through an audit of a company's financial statements, and 
making a whistleblower submission would be contrary to requirements of 
Section 10A of the Exchange Act (15 U.S.C. 78j-a).
    (5) You are the spouse, parent, child, or sibling of a member or 
employee of the Commission, or you reside in the same household as a 
member or employee of the Commission;
    (6) You acquired the original information you gave the Commission 
from a person:
    (i) Who is subject to paragraph (c)(4) of this section, unless the 
information is not excluded from that person's use, or you are 
providing the Commission with information about possible violations 
involving that person; or
    (ii) With the intent to evade any provision of these rules; or
    (7) In your whistleblower submission, your other dealings with the 
Commission, or your dealings with another authority in connection with 
a related action, you knowingly and willfully make any false, 
fictitious, or fraudulent statement or representation, or use any false 
writing or document knowing that it contains any false, fictitious, or 
fraudulent statement or entry with intent to mislead or otherwise 
hinder the Commission or another authority.

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

    (a) To be considered a whistleblower under Section 21F of the 
Exchange Act (15 U.S.C. 78u-6(h)), you must submit your information 
about a possible securities law violation by either of these methods:
    (1) Online, through the Commission's Web site located at http://www.sec.gov; or
    (2) By mailing or faxing a Form TCR (Tip, Complaint or Referral) 
(referenced in Sec.  249.1800 of this chapter) to the SEC Office of the 
Whistleblower, 100 F Street NE., Washington, DC 20549-5631, Fax (703) 
813-9322.
    (b) Further, to be eligible for an award, you must declare under 
penalty of perjury at the time you submit your information pursuant to 
paragraph (a)(1) or (2) of this section that your information is true 
and correct to the best of your knowledge and belief.
    (c) Notwithstanding paragraphs (a) and (b) of this section, if you 
are providing your original information to the Commission anonymously, 
then your attorney must submit your information on your behalf pursuant 
to the procedures specified in paragraph (a) of this section. Prior to 
your attorney's submission, you must provide your attorney with a 
completed Form TCR (referenced in Sec.  249.1800 of this chapter) that 
you have signed under penalty of perjury. When your attorney makes her 
submission on your behalf, your attorney will be required to certify 
that he or she:
    (1) Has verified your identity;
    (2) Has reviewed your completed and signed Form TCR (referenced in 
Sec.  249.1800 of this chapter) for completeness and accuracy and that 
the information contained therein is true, correct and complete to the 
best of the attorney's knowledge, information and belief;
    (3) Has obtained your non-waivable consent to provide the 
Commission with your original completed and signed Form TCR (referenced 
in Sec.  249.1800 of this chapter) in the event that the Commission 
requests it due to concerns that you may have knowingly and willfully 
made false, fictitious, or fraudulent statements or representations, or 
used any false writing or document knowing that the writing or document 
contains any false fictitious or fraudulent statement or entry; and
    (4) Consents to be legally obligated to provide the signed Form TCR 
(referenced in Sec.  249.1800 of this chapter) within seven (7) 
calendar days of receiving such request from the Commission.
    (d) If you submitted original information in writing to the 
Commission after July 21, 2010 (the date of enactment of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act) but before the 
effective date of these rules, your submission will be deemed to 
satisfy the requirements set forth in paragraphs (a) and (b) of this 
section. If you were an anonymous whistleblower, however, you must 
provide your attorney with a completed and signed copy of Form TCR 
(referenced in Sec.  249.1800 of this chapter) within 60 days of the 
effective date of these rules, your attorney must retain the signed 
form in his or her records, and you must provide of copy of the signed 
form to the Commission staff upon request by Commission staff prior to 
any payment of an award to you in connection with your submission. 
Notwithstanding the foregoing, you must follow the procedures and 
conditions for making a claim for a whistleblower award described in 
Sec. Sec.  240.21F-10 and 240.21F-11 of this chapter.

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

    (a) Whenever a Commission action results in monetary sanctions 
totaling more than $1,000,000, the Office of the Whistleblower will 
cause to be published on the Commission's Web site a ``Notice of 
Covered Action.'' Such Notice will be published subsequent to the entry 
of a final judgment or order that alone, or collectively with other 
judgments or orders previously entered in the Commission action, 
exceeds $1,000,000; or, in the absence of such judgment or order 
subsequent to the deposit of monetary sanctions exceeding $1,000,000 
into a disgorgement or other fund pursuant to Section 308(b) of the 
Sarbanes-Oxley Act of 2002. A claimant will have ninety (90) days from 
the date of the Notice of Covered Action to file a claim for an award 
based on that action, or the claim will be barred.
    (b) To file a claim for a whistleblower award, you must file Form 
WB-APP, Application for Award for Original Information Provided 
Pursuant to Section 21F of the Securities Exchange Act of 1934 
(referenced in Sec.  249.1801 of this chapter). You must sign this form 
as the claimant and submit it to the Office of the Whistleblower by 
mail or fax. All claim forms, including any attachments, must be 
received by the Office of the Whistleblower within ninety (90) calendar 
days of the date of the Notice of Covered Action in order to be 
considered for an award.
    (c) If you provided your original information to the Commission 
anonymously, you must disclose your identity on the Form WB-APP 
(referenced in Sec.  249.1801 of this chapter), and your identity must 
be verified in a form and manner that is acceptable to the Office of 
the Whistleblower prior to the payment of any award.

[[Page 34369]]

    (d) Once the time for filing any appeals of the Commission's 
judicial or administrative action has expired, or where an appeal has 
been filed, after all appeals in the action have been concluded, the 
staff designated by the Director of the Division of Enforcement 
(``Claims Review Staff'') will evaluate all timely whistleblower award 
claims submitted on Form WB-APP (referenced in Sec.  249.1801 of this 
chapter) in accordance with the criteria set forth in these rules. In 
connection with this process, the Office of the Whistleblower may 
require that you provide additional information relating to your 
eligibility for an award or satisfaction of any of the conditions for 
an award, as set forth in Sec.  240.21F-(8)(b) of this chapter. 
Following that evaluation, the Office of the Whistleblower will send 
you a Preliminary Determination setting forth a preliminary assessment 
as to whether the claim should be allowed or denied and, if allowed, 
setting forth the proposed award percentage amount.
    (e) You may contest the Preliminary Determination made by the 
Claims Review Staff by submitting a written response to the Office of 
the Whistleblower setting forth the grounds for your objection to 
either the denial of an award or the proposed amount of an award. The 
response must be in the form and manner that the Office of the 
Whistleblower shall require. You may also include documentation or 
other evidentiary support for the grounds advanced in your response.
    (1) Before determining whether to contest a Preliminary 
Determination, you may:
    (i) Within thirty (30) days of the date of the Preliminary 
Determination, request that the Office of the Whistleblower make 
available for your review the materials from among those set forth in 
Sec.  240.21F-12(a) of this chapter that formed the basis of the Claims 
Review Staff's Preliminary Determination.
    (ii) Within thirty (30) calendar days of the date of the 
Preliminary Determination, request a meeting with the Office of the 
Whistleblower; however, such meetings are not required and the office 
may in its sole discretion decline the request.
    (2) If you decide to contest the Preliminary Determination, you 
must submit your written response and supporting materials within sixty 
(60) calendar days of the date of the Preliminary Determination, or if 
a request to review materials is made pursuant to paragraph (e)(1) of 
this section, then within sixty (60) calendar days of the Office of the 
Whistleblower making those materials available for your review.
    (f) If you fail to submit a timely response pursuant to paragraph 
(e) of this section, then the Preliminary Determination will become 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 for 
purposes of paragraph (h) of this section). Your failure to submit a 
timely response contesting a Preliminary Determination will constitute 
a failure to exhaust administrative remedies, and you will be 
prohibited from pursuing an appeal pursuant to Sec.  240.21F-13 of this 
chapter.
    (g) If you submit a timely response pursuant to paragraph (e) of 
this section, then the Claims Review Staff will consider the issues and 
grounds advanced in your response, along with any supporting 
documentation you provided, and will make its Proposed Final 
Determination.
    (h) The Office of the Whistleblower will then notify the Commission 
of each Proposed Final Determination. Within thirty 30 days thereafter, 
any Commissioner may 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 will 
become the Final Order of the Commission. In the event a Commissioner 
requests a review, the Commission will review the record that the staff 
relied upon in making its determinations, including your previous 
submissions to the Office of the Whistleblower, and issue its Final 
Order.
    (i) The Office of the Whistleblower will provide you with the Final 
Order of the Commission.

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

    (a) If you are eligible to receive an award following a Commission 
action that results in monetary sanctions totaling more than 
$1,000,000, you also may be eligible to receive an award based on the 
monetary sanctions that are collected from a related action (as defined 
in Sec.  240.21F-3 of this chapter).
    (b) You must also use Form WB-APP (referenced in Sec.  249.1801 of 
this chapter) to submit a claim for an award in a related action. You 
must sign this form as the claimant and submit it to the Office of the 
Whistleblower by mail or fax as follows:
    (1) If a final order imposing monetary sanctions has been entered 
in a related action at the time you submit your claim for an award in 
connection with a Commission action, you must submit your claim for an 
award in that related action on the same Form WB-APP (referenced in 
Sec.  249.1801 of this chapter) that you use for the Commission action.
    (2) If a final order imposing monetary sanctions in a related 
action has not been entered at the time you submit your claim for an 
award in connection with a Commission action, you must submit your 
claim on Form WB-APP (referenced in Sec.  249.1801 of this chapter) 
within ninety (90) days of the issuance of a final order imposing 
sanctions in the related action.
    (c) The Office of the Whistleblower may request additional 
information from you in connection with your claim for an award in a 
related action to demonstrate that you 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. 
The Office of the Whistleblower may, in its discretion, seek assistance 
and confirmation from the other agency in making this determination.
    (d) Once the time for filing any appeals of the final judgment or 
order in a related action has expired, or if an appeal has been filed, 
after all appeals in the action have been concluded, the Claims Review 
Staff will evaluate all timely whistleblower award claims submitted on 
Form WB-APP (referenced in Sec.  249.1801 of this chapter) in 
connection with the related action. The evaluation will be undertaken 
pursuant to the criteria set forth in these rules. In connection with 
this process, the Office of the Whistleblower may require that you 
provide additional information relating to your eligibility for an 
award or satisfaction of any of the conditions for an award, as set 
forth in Sec.  240.21F-(8)(b) of this chapter. Following this 
evaluation, the Office of the Whistleblower will send you a Preliminary 
Determination setting forth a preliminary assessment as to whether the 
claim should be allowed or denied and, if allowed, setting forth the 
proposed award percentage amount.
    (e) You may contest the Preliminary Determination made by the 
Claims Review Staff by submitting a written response to the Office of 
the Whistleblower setting forth the grounds for your objection to 
either the denial of

[[Page 34370]]

an award or the proposed amount of an award. The response must be in 
the form and manner that the Office of the Whistleblower shall require. 
You may also include documentation or other evidentiary support for the 
grounds advanced in your response.
    (1) Before determining whether to contest a Preliminary 
Determination, you may:
    (i) Within thirty (30) days of the date of the Preliminary 
Determination, request that the Office of the Whistleblower make 
available for your review the materials from among those set forth in 
Sec.  240.21F-12(a) of this chapter that formed the basis of the Claims 
Review Staff's Preliminary Determination.
    (ii) Within thirty (30) days of the date of the Preliminary 
Determination, request a meeting with the Office of the Whistleblower; 
however, such meetings are not required and the office may in its sole 
discretion decline the request.
    (2) If you decide to contest the Preliminary Determination, you 
must submit your written response and supporting materials within sixty 
(60) calendar days of the date of the Preliminary Determination, or if 
a request to review materials is made pursuant to paragraph (e)(1)(i) 
of this section, then within sixty (60) calendar days of the Office of 
the Whistleblower making those materials available for your review.
    (f) If you fail to submit a timely response pursuant to paragraph 
(e) of this section, then the Preliminary Determination will become 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 for 
purposes of paragraph (h) of this section). Your failure to submit a 
timely response contesting a Preliminary Determination will constitute 
a failure to exhaust administrative remedies, and you will be 
prohibited from pursuing an appeal pursuant to Sec.  240.21F-13 of this 
chapter.
    (g) If you submit a timely response pursuant to paragraph (e) of 
this section, then the Claims Review Staff will consider the issues and 
grounds that you advanced in your response, along with any supporting 
documentation you provided, and will make its Proposed Final 
Determination.
    (h) The Office of the Whistleblower will notify the Commission of 
each Proposed Final Determination. Within thirty 30 days thereafter, 
any Commissioner may 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 will 
become the Final Order of the Commission. In the event a Commissioner 
requests a review, the Commission will review the record that the staff 
relied upon in making its determinations, including your previous 
submissions to the Office of the Whistleblower, and issue its Final 
Order.
    (i) The Office of the Whistleblower will provide you with the Final 
Order of the Commission.

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

    (a) The following items constitute the materials that the 
Commission and the Claims Review Staff may rely upon to make an award 
determination pursuant to Sec. Sec.  240.21F-10 and 240.21F-11 of this 
chapter:
    (1) Any publicly available materials from the covered action or 
related action, including:
    (i) The complaint, notice of hearing, answers and any amendments 
thereto;
    (ii) The final judgment, consent order, or final administrative 
order;
    (iii) Any transcripts of the proceedings, including any exhibits;
    (iv) Any items that appear on the docket; and
    (v) Any appellate decisions or orders.
    (2) The whistleblower's Form TCR (referenced in Sec.  249.1800 of 
this chapter), including attachments, and other related materials 
provided by the whistleblower to assist the Commission with the 
investigation or examination;
    (3) The whistleblower's Form WB-APP (referenced in Sec.  249.1800 
of this chapter), including attachments, and any other filings or 
submissions from the whistleblower in support of the award application;
    (4) Sworn declarations (including attachments) from the Commission 
staff regarding any matters relevant to the award determination;
    (5) With respect to an award claim involving a related action, any 
statements or other information that the entity provides or identifies 
in connection with an award determination, provided the entity has 
authorized the Commission to share the information with the claimant. 
(Neither the Commission nor the Claims Review Staff may rely upon 
information that the entity has not authorized the Commission to share 
with the claimant); and
    (6) Any other documents or materials including sworn declarations 
from third-parties that are received or obtained by the Office of the 
Whistleblower to assist the Commission resolve the claimant's award 
application, including information related to the claimant's 
eligibility. (Neither the Commission nor the Claims Review Staff may 
rely upon information that the entity has not authorized the Commission 
to share with the claimant).
    (b) These rules do not entitle claimants to obtain from the 
Commission any materials (including any pre-decisional or internal 
deliberative process materials that are prepared exclusively to assist 
the Commission in deciding the claim) other than those listed in 
paragraph (a) of this section. Moreover, the Office of the 
Whistleblower may make redactions as necessary to comply with any 
statutory restrictions, to protect the Commission's law enforcement and 
regulatory functions, and to comply with requests for confidential 
treatment from other law enforcement and regulatory authorities. The 
Office of the Whistleblower may also require you to sign a 
confidentiality agreement, as set forth in Sec.  240.21F-(8)(b)(4) of 
this chapter, before providing these materials.

Sec.  240.21F-13  Appeals.

    (a) Section 21F of the Exchange Act (15 U.S.C. 78u-6) commits 
determinations of whether, to whom, and in what amount to make awards 
to the Commission's discretion. A determination of whether or to whom 
to make an award may be appealed within 30 days after the Commission 
issues its final decision 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. Where the 
Commission makes an award based on the factors set forth in Sec.  
240.21F-6 of this chapter of not less than 10 percent and not more than 
30 percent of the monetary sanctions collected in the Commission or 
related action, the Commission's determination regarding the amount of 
an award (including the allocation of an award as between multiple 
whistleblowers, and any factual findings, legal conclusions, policy 
judgments, or discretionary assessments involving the Commission's 
consideration of the factors in Sec.  240.21F-6 of this chapter) is not 
appealable.
    (b) The record on appeal shall consist of the Preliminary 
Determination, the Final Order of the Commission, and any other items 
from those set forth in Sec.  240.21F-12(a) of this chapter that either 
the claimant or the Commission identifies for inclusion in the record.

[[Page 34371]]

The record on appeal shall not include any pre-decisional or internal 
deliberative process materials that are prepared exclusively to assist 
the Commission in deciding the claim (including the staff's Draft Final 
Determination in the event that the Commissioners reviewed the claim 
and issued the Final Order).

Sec.  240.21F-14  Procedures applicable to the payment of awards.

    (a) Any award made pursuant to these rules will be paid from the 
Securities and Exchange Commission Investor Protection Fund (the 
``Fund'').
    (b) A recipient of a whistleblower award is 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.
    (c) Payment of a whistleblower award for a monetary sanction 
collected in a Commission action or related action shall be made 
following the later of:
    (1) The date on which the monetary sanction is collected; or
    (2) The completion of the appeals process for all whistleblower 
award claims arising from:
    (i) The Notice of Covered Action, in the case of any payment of an 
award for a monetary sanction collected in a Commission action; or
    (ii) The related action, in the case of any payment of an award for 
a monetary sanction collected in a related action.
    (d) If there are insufficient amounts available in the Fund to pay 
the entire amount of an award payment within a reasonable period of 
time from the time for payment specified by paragraph (c) of this 
section, then subject to the following terms, the balance of the 
payment shall be paid when amounts become available in the Fund, as 
follows:
    (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 these payments will 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 will be paid on a pro rata basis until 
sufficient amounts become available in the Fund to pay their entire 
payments.
    (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 will share the same payment priority and will be 
paid on a pro rata basis until sufficient amounts become available in 
the Fund to pay their entire payments.

Sec.  240.21F-15  No amnesty.

    The Securities Whistleblower Incentives and Protection provisions 
do not provide amnesty to individuals who provide information to the 
Commission. The fact that you may become a whistleblower and assist in 
Commission investigations and enforcement actions does not preclude the 
Commission from bringing an action against you based upon your own 
conduct in connection with violations of the Federal securities laws. 
If such an action is determined to be appropriate, however, the 
Commission will take your cooperation into consideration in accordance 
with its Policy Statement Concerning Cooperation by Individuals in 
Investigations and Related Enforcement Actions (17 CFR 202.12).

Sec.  240.21F-16  Awards to whistleblowers who engage in culpable 
conduct.

    In determining whether the required $1,000,000 threshold has been 
satisfied (this threshold is further explained in Sec.  240.21F-10 of 
this chapter) for purposes of making any award, the Commission will not 
take into account 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. Similarly, if the Commission determines that a 
whistleblower is eligible for an award, any amounts that the 
whistleblower or such an entity pay in sanctions as a result of the 
action or related actions will not be included within the calculation 
of the amounts collected for purposes of making payments.

Sec.  240.21F-17  Staff communications with individuals reporting 
possible securities law violations.

    (a) No person may take any action to impede an individual from 
communicating directly with the Commission staff about a possible 
securities law violation, including enforcing, or threatening to 
enforce, a confidentiality agreement (other than agreements dealing 
with information covered by Sec.  240.21F-4(b)(4)(i) and Sec.  240.21F-
4(b)(4)(ii) of this chapter related to the legal representation of a 
client) with respect to such communications.
    (b) If you are a director, officer, member, agent, or employee of 
an entity that has counsel, and you have initiated communication with 
the Commission relating to a possible securities law violation, the 
staff is authorized to communicate directly with you regarding the 
possible securities law violation without seeking the consent of the 
entity's counsel.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
3. The authority citation for Part 249 is amended by adding the 
following citations in numerical order to read as follows:

    Authority: 15 U.S.C. 78a, et seq. and 7201 et seq.; and 18 
U.S.C. 1350, unless otherwise noted.
* * * * *
    Section 249.1800 is also issued under Public Law 111.203, Sec.  
922(a), 124 Stat 1841 (2010).
    Section 249.1801 is also issued under Public Law 111.203, Sec.  
922(a), 124 Stat 1841 (2010).
* * * * *

0
4. Add Subpart S to read as follows:

Subpart S--Whistleblower Forms

Sec.
249.1800 Form TCR, tip, complaint or referral.
249.1801 Form WB-APP, Application for award for original information 
submitted pursuant to Section 21F of the Securities Exchange Act of 
1934.

Sec.  249.1800  Form TCR, tip, complaint or referral.

    This form may be used by anyone wishing to provide the SEC with 
information concerning a violation of the Federal securities laws. The 
information provided may be disclosed to Federal, state, local, or 
foreign agencies responsible for investigating, prosecuting, enforcing, 
or implementing the Federal securities laws, rules, or regulations 
consistent with the confidentiality requirements set forth in Section 
21F(h)(2) of the Exchange Act (15 U.S.C. 78u-6(h)(2)) and Sec.  
240.21F-7 of this chapter.

Sec.  249.1801  Form WB-APP, Application for award for original 
information submitted pursuant to Section 21F of the Securities 
Exchange Act of 1934.

    This form must be used by persons making a claim for a 
whistleblower award in connection with information provided to the SEC 
or to another agency in a related action. The information provided will 
enable the Commission to determine your eligibility for payment of an 
award pursuant to Section 21F of the Securities Exchange Act of 1934 
(15 U.S.C. 78u-6). This information may be disclosed to Federal, state, 
local, or foreign agencies responsible for investigating, prosecuting, 
enforcing, or

[[Page 34372]]

implementing the Federal securities laws, rules, or regulations 
consistent with the confidentiality requirements set forth in Section 
21F(h)(2) of the Exchange Act (15 U.S.C. 78u-6(h)(2)) and Sec.  
240.21F-7 of this chapter. Furnishing the information is voluntary, but 
a decision not to do so may result in you not being eligible for award 
consideration.

    Note: The following Forms will not appear in the Code of Federal 
Regulations.

BILLING CODE 8011-01-P
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BILLING CODE 8011-01-C

Privacy Act Statement

    This notice is given under the Privacy Act of 1974. This form may 
be used by anyone wishing to provide the SEC with information 
concerning a possible violation of the federal securities laws. We are 
authorized to request information from you by various laws: Sections 19 
and 20 of the Securities Act of 1933, Sections 21 and 21F of the 
Securities Exchange Act of 1934, Section 321 of the Trust Indenture Act 
of 1939, Section 42 of the Investment Company Act of 1940, Section 209 
of the Investment Advisers Act of 1940 and Title 17 of the Code of 
Federal Regulations, Section 202.5.
    Our principal purpose in requesting information is to gather facts 
in order to determine whether any person has violated, is violating, or 
is about to violate any provision of the federal securities laws or 
rules for which we have enforcement authority. Facts developed may, 
however, constitute violations of other laws or rules. Further, if you 
are submitting information for the SEC's whistleblower award program 
pursuant to Section 21F of the Securities Exchange Act of 1934 
(Exchange Act), the information provided will be used in connection 
with our evaluation of your or your client's eligibility and other 
factors relevant to our determination of whether to pay an award to you 
or your client.
    The information provided may be used by SEC personnel for purposes 
of investigating possible violations of, or to conduct investigations 
authorized by, the federal securities law; in proceedings in which the 
federal securities laws are in issue or the SEC is a party; to 
coordinate law enforcement activities between the SEC and other 
federal, state, local or foreign law enforcement agencies, securities 
self regulatory organizations, and foreign securities authorities; and 
pursuant to other routine uses as described in SEC-42 ``Enforcement 
Files.''
    Furnishing the information requested herein is voluntary. However, 
a decision not provide any of the requested information, or failure to 
provide complete information, may affect our evaluation of your 
submission. Further, if you are submitting this information for the SEC 
whistleblower program and you do not execute the Whistleblower 
Declaration or, if you are submitting information anonymously, identify 
the attorney representing you in this matter, you may not be considered 
for an award.
    Questions concerning this form maybe directed to the SEC Office of 
the Whistleblower, 100 F Street, NE, Washington, DC 20549, Tel. (202) 
551-4790, Fax (703) 813-9322.

Submission Procedures

     After manually completing this Form TCR, please send it by 
mail or delivery to the SEC Office of the Whistleblower, 100 F. Street, 
NE, Washington, DC 20549, or by facsimile to (703) 813-9322.
     You have the right to submit information anonymously. If 
you are submitting anonymously and you want to be considered for a 
whistleblower award, however, you must be represented by an attorney in 
this matter and Section B of this form must be completed. Otherwise, 
you may, but are not required, to have an attorney. If you are not 
represented by an attorney in this matter, you may leave Section B 
blank.
     If you are submitting information for the SEC's 
whistleblower award program, you must submit your information either 
using this Form TCR or electronically through the SEC's Electronic Data 
Collection System, available on the SEC web site at www.sec.gov.

Instructions for Completing Form TCR:

Section A: Information about You

    Questions 1-3: Please provide the following information about 
yourself:
     Last name, first name, and middle initial
     Complete address, including city, state and zip code
     Telephone number and, if available, an alternate number 
where you can be reached
     Your e-mail address (to facilitate communications, we 
strongly encourage you to provide your email address),
     Your preferred method of communication; and
     Your occupation

[[Page 34378]]

Section B: Information about Your Attorney. Complete this section only 
if you are represented by an attorney in this matter. You must be 
represented by an attorney, and this section must be completed, if you 
are submitting your information anonymously and you want to be 
considered for the SEC's whistleblower award program.

    Questions 1-4: Provide the following information about the attorney 
representing you in this matter:
     Attorney's name
     Firm name
     Complete address, including city, state and zip code
     Telephone number and fax number, and
     E-mail address

Section C: Tell Us about the Individual and/or Entity You Have a 
Complaint Against. If your complaint relates to more than two 
individuals and/or entities, you may attach additional sheets.

    Question 1: Choose one of the following that best describes the 
individual or entity to which your complaint relates:
     For Individuals: accountant, analyst, attorney, auditor, 
broker, compliance officer, employee, executive officer or director, 
financial planner, fund manager, investment advisor representative, 
stock promoter, trustee, unknown, or other (specify).
     For Entity: bank, broker-dealer, clearing agency, day 
trading firm, exchange, Financial Industry Regulatory Authority, 
insurance company, investment advisor, investment advisor 
representative, investment company, Individual Retirement Account or 
401(k) custodian/administrator, market maker, municipal securities 
dealers, mutual fund, newsletter company/investment publication 
company, on-line trading firm, private fund company (including hedge 
fund, private equity fund, venture capital fund, or real estate fund), 
private/closely held company, publicly held company, transfer agent/
paying agent/registrar, underwriter, unknown, or other (specify).
    Questions 2-4: For each subject, provide the following information, 
if known:
     Full name
     Complete address, including city, state and zip code
     Telephone number,
     E-mail address, and
     Internet address, if applicable

Section D: Tell Us about Your Complaint

    Question 1: State the date (mm/dd/yyyy) that the alleged conduct 
began.
    Question 2: Choose the option that you believe best describes the 
nature of your complaint. If you are alleging more than one violation, 
please list all that you believe may apply. Use additional sheets if 
necessary.
     Theft/misappropriation (advance fee fraud; lost or stolen 
securities; hacking of account)
     Misrepresentation/omission (false/misleading marketing/
sales literature; inaccurate, misleading or non-disclosure by Broker-
Dealer, Investment Adviser and Associated Person; false/material 
misstatements in firm research that were basis of transaction)
     Offering fraud (Ponzi/pyramid scheme; other offering 
fraud)
     Registration violations (unregistered securities offering)
     Trading (after hours trading; algorithmic trading; front-
running; insider trading, manipulation of securities/prices; market 
timing; inaccurate quotes/pricing information; program trading; short 
selling; trading suspensions; volatility)
     Fees/mark-ups/commissions (excessive or unnecessary 
administrative fees; excessive commissions or sales fees; failure to 
disclose fees; insufficient notice of change in fees; negotiated fee 
problems; excessive mark-ups/markdowns; excessive or otherwise improper 
spreads)
     Corporate disclosure/reporting/other issuer matter (audit; 
corporate governance; conflicts of interest by management; executive 
compensation; failure to notify shareholders of corporate events; 
false/misleading financial statements, offering documents, press 
releases, proxy materials; failure to file reports; financial fraud; 
Foreign Corrupt Practices Act violations; going private transactions; 
mergers and acquisitions; restrictive legends, including 144 issues; 
reverse stock splits; selective disclosure--Regulation FD, 17 CFR 243; 
shareholder proposals; stock options for employees; stock splits; 
tender offers)
     Sales and advisory practices (background information on 
past violations/integrity; breach of fiduciary duty/responsibility 
(IA); failure to disclose breakpoints; churning/excessive trading; cold 
calling; conflict of interest; abuse of authority in discretionary 
trading; failure to respond to investor; guarantee against loss/promise 
to buy back shares; high pressure sales techniques; instructions by 
client not followed; investment objectives not followed; margin; poor 
investment advice; Regulation E (Electronic Transfer Act); Regulation 
S-P, 17 CFR 248, (privacy issues); solicitation methods (non-cold 
calling; seminars); suitability; unauthorized transactions)
     Operational (bond call; bond default; difficulty buying/
selling securities; confirmations/statements; proxy materials/
prospectus; delivery of funds/proceeds; dividend and interest problems; 
exchanges/switches of mutual funds with fund family; margin (illegal 
extension of margin credit, Regulation T restrictions, unauthorized 
margin transactions); online issues (trading system operation); 
settlement (including T+1 or T=3 concerns); stock certificates; spam; 
tax reporting problems; titling securities (difficulty titling 
ownership); trade execution.
     Customer accounts (abandoned or inactive accounts; account 
administration and processing; identity theft affecting account; IPOs: 
problems with IPO allocation or eligibility; inaccurate valuation of 
Net Asset Value; transfer of account)
     Comments/complaints about SEC, Self-Regulatory 
Organization, and Securities Investor Protection Corporation processes 
& programs (arbitration: bias by arbitrators/forum, failure to pay/
comply with award, mandatory arbitration requirements, procedural 
problems or delays; SEC: complaints about enforcement actions, 
complaints about rulemaking, failure to act; Self-Regulatory 
Organization: failure to act; Investor Protection: inadequacy of laws 
or rules; SIPC: customer protection, proceedings and Broker-Dealer 
liquidations;
     Other (analyst complaints; market maker activities; 
employer/employee disputes; specify other).
    Question 3a: State whether you or your counsel have had any prior 
communications with the SEC concerning this matter.
    Question 3b: If the answer to question 3a is yes, provide the name 
of the SEC staff member with whom you or your counsel communicated.
    Question 4a: Indicate whether you or your counsel have provided the 
information you are providing to the SEC to any other agency or 
organization.
    Question 4b: If the answer to question 4a is yes, provide details.
    Question 4c: Provide the name and contact information of the point 
of contact at the other agency or organization, if known.
    Question 5a: Indicate whether your complaint relates to an entity 
of which you are, or were in the past, an officer, director, counsel, 
employee, consultant, or contractor.
    Question 5b: If the answer to question 5a is yes, state whether you 
have reported this violation to your

[[Page 34379]]

supervisor, compliance office, whistleblower hotline, ombudsman, or any 
other available mechanism at the entity for reporting violations.
    Question 5c: If the answer to question 5b is yes, provide details.
    Question 5d: Provide the date on which you took the actions 
described in questions 5a and 5b.
    Question 6a: Indicate whether you have taken any other action 
regarding your complaint, including whether you complained to the SEC, 
another regulator, a law enforcement agency, or any other agency or 
organization; initiated legal action, mediation or arbitration, or 
initiated any other action.
    Question 6b: If you answered yes to question 6a, provide details, 
including the date on which you took the action(s) described, the name 
of the person or entity to whom you directed any report or complaint 
and contact information for the person or entity, if known, and the 
complete case name, case number, and forum of any legal action you have 
taken. Use additional sheets if necessary.
    Question 7a: Choose from the following the option that you believe 
best describes the type of security or investment at issue, if 
applicable:
     1031 exchanges
     529 plans
     American Depositary Receipts
     Annuities (equity-indexed annuities, fixed annuities, 
variable annuities)
     Asset-backed securities
     Auction rate securities
     Banking products (including credit cards)
     Certificates of deposit (CDs)
     Closed-end funds
     Coins and precious metals (gold, silver, etc.)
     Collateralized mortgage obligations (CMOs)
     Commercial paper
     Commodities (currency transactions, futures, stock index 
options)
     Convertible securities
     Debt (corporate, lower-rated or ``junk'', municipal)
     Equities (exchange-traded, foreign, Over-the-Counter, 
unregistered, linked notes)
     Exchange Traded Funds
     Franchises or business ventures
     Hedge funds
     Insurance contracts (not annuities)
     Money-market funds
     Mortgage-backed securities (mortgages, reverse mortgages)
     Mutual funds
     Options (commodity options, index options)
     Partnerships
     Preferred shares
     Prime bank securities/high yield programs
     Promissory notes
     Real estate (real estate investment trusts (REITs))
     Retirement plans (401(k), IRAs)
     Rights and warrants
     Structured note products
     Subprime issues
     Treasury securities
     U.S. government agency securities
     Unit investment trusts (UIT)
     Viaticals and life settlements
     Wrap accounts
     Separately Managed Accounts (SMAs)
     Unknown
     Other (specify)
    Question 7b: Provide the name of the issuer or security, if 
applicable.
    Question 7c: Provide the ticker symbol or CUSIP number of the 
security, if applicable.
    Question 8: State in detail all the facts pertinent to the alleged 
violation. Explain why you believe the facts described constitute a 
violation of the federal securities laws. Attach additional sheets if 
necessary.
    Question 9: Describe all supporting materials in your possession 
and the availability and location of additional supporting materials 
not in your possession. Attach additional sheets if necessary.
    Question 10: Describe how you obtained the information that 
supports your allegation. If any information was obtained from an 
attorney or in a communication where an attorney was present, identify 
such information with as much particularity as possible. In addition, 
if any information was obtained from a public source, identify the 
source with as much particularity as possible. Attach additional sheets 
if necessary.
    Question 11: You may use this space to identify any documents or 
other information in your submission that you believe could reasonably 
be expected to reveal your identity. Explain the basis for your belief 
that your identity would be revealed if the documents or information 
were disclosed to a third party.
    Question 12: Provide any additional information you think may be 
relevant.

Section E: Eligibility Requirements

    Question 1: State whether you are currently, or were at the time 
you acquired the original information that you are submitting to the 
SEC, a member, officer, or employee of the Department of Justice; the 
Securities and Exchange Commission; the Comptroller of the Currency, 
the Board of Governors of the Federal Reserve System, the Federal 
Deposit Insurance Corporation, the Office of Thrift Supervision; the 
Public Company Accounting Oversight Board; any law enforcement 
organization; or any national securities exchange, registered 
securities association, registered clearing agency, the Municipal 
Securities Rulemaking Board
    Question 2: State whether you are, or were you at the time you 
acquired the original information you are submitting to the SEC, a 
member, officer or employee of a foreign government, any political 
subdivision, department, agency, or instrumentality of a foreign 
government, or any other foreign financial regulatory authority as that 
term is defined in Section 3(a)(52) of the Securities Exchange Act of 
1934.
     Section 3(a)(52) of the Exchange Act (15 U.S.C. Sec.  
78c(a)(52)) currently defines ``foreign financial regulatory 
authority'' as ``any (A) foreign securities authority, (B) other 
governmental body or foreign equivalent of a self-regulatory 
organization empowered by a foreign government to administer or enforce 
its laws relating to the regulation of fiduciaries, trusts, commercial 
lending, insurance, trading in contracts of sale of a commodity for 
future delivery, or other instruments traded on or subject to the rules 
of a contract market, board of trade, or foreign equivalent, or other 
financial activities, or (C) membership organization a function of 
which is to regulate participation of its members in activities listed 
above.''
    Question 3: State whether you acquired the information you are 
providing to the SEC through the performance of an engagement required 
under the securities laws by an independent public accountant.
    Question 4: State whether you are providing the information 
pursuant to a cooperation agreement with the SEC or with any other 
agency or organization.
    Question 5: State whether you are a spouse, parent, child or 
sibling of a member or employee of the SEC, or whether you reside in 
the same household as a member or employee of the SEC.
    Question 6: State whether you acquired the information you are 
providing to the SEC from any individual described in Question 1 
through 5 of this Section.
    Question 7: If you answered ``yes'' to questions 1 though 6, please 
provide details.
    Question 8a: State whether you are providing the information you 
are submitting to the SEC before you (or anyone representing you) 
received any request, inquiry or demand that relates

[[Page 34380]]

to the subject matter of your submission in connection with: (i) an 
investigation, inspection or examination by the SEC, the Public Company 
Accounting Oversight Board, or any self-regulatory organization; or 
(ii) an investigation by Congress, or any other authority of the 
federal government, or a state Attorney General or securities 
regulatory authority?
    Question 8b: If you answered ``no'' to questions 8a, please provide 
details. Use additional sheets if necessary.
    Question 9a: State whether you are the subject or target of a 
criminal investigation or have been convicted of a criminal violation 
in connection with the information you are submitting to the SEC.
    Question 9b: If you answered ``yes'' to question 9a, please provide 
details, including the name of the agency or organization that 
conducted the investigation or initiated the action against you, the 
name and telephone number of your point of contact at the agency or 
organization, if available and the investigation/case name and number, 
if applicable. Use additional sheets, if necessary.

SECTION F: Whistleblower's Declaration.

    You must sign this Declaration if you are submitting this 
information pursuant to the SEC whistleblower program and wish to be 
considered for an award. If you are submitting your information 
anonymously, you must still sign this Declaration, and you must provide 
your attorney with the original of this signed form.
    If you are not submitting your information pursuant to the SEC 
whistleblower program, you do not need to sign this Declaration.

SECTION G: COUNSEL CERTIFICATION

    If you are submitting this information pursuant to the SEC 
whistleblower program and are doing so anonymously, your attorney must 
sign the Counsel Certification section.
    If you are represented in this matter but you are not submitting 
your information pursuant to the SEC whistleblower program, your 
attorney does not need to sign the Counsel Certification Section.
BILLING CODE 8011-01-P

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BILLING CODE 8011-01-C

Privacy Act Statement

    This notice is given under the Privacy Act of 1974. We are 
authorized to request information from you by Section 21F of the 
Securities Exchange Act of 1934. Our principal purpose in requesting 
this information is to assist in our evaluation of your eligibility and 
other factors relevant to our determination of whether to pay a 
whistleblower award to you under Section 21F of the Exchange Act.
    However, the information provided may be used by SEC personnel for 
purposes of investigating possible violations of, or to conduct 
investigations authorized by, the federal securities law; in 
proceedings in which the federal securities laws are in issue or the 
SEC is a party; to coordinate law enforcement activities between the 
SEC and other federal, state, local or foreign law enforcement 
agencies, securities self regulatory organizations, and foreign 
securities authorities; and pursuant to other routine uses as described 
in SEC-42 ``Enforcement Files.''

[[Page 34383]]

    Furnishing this information is voluntary, but a decision not do so, 
or failure to provide complete information, may result in our denying a 
whistleblower award to you, or may affect our evaluation of the 
appropriate amount of an award. Further, if you are submitting this 
information for the SEC whistleblower program and you do not execute 
the Declaration, you may not be considered for an award.
    Questions concerning this form may be directed to the SEC Office of 
the Whistleblower, 100 F Street, NE, Washington, DC 20549-5631, Tel. 
(202) 551-4790, Fax (703) 813-9322.

General

     This form should be used by persons making a claim for a 
whistleblower award in connection with information provided to the SEC 
or to another agency in a related action. In order to be deemed 
eligible for an award, you must meet all the requirements set forth in 
Section 21F of the Securities Exchange Act of 1934 and the rules 
thereunder.
     You must sign the Form WB-APP as the claimant. If you 
provided your information to the SEC anonymously, you must now disclose 
your identity on this form and your identity must be verified in a form 
and manner that is acceptable to the Office of the Whistleblower prior 
to the payment of any award.
    [cir] If you are filing your claim in connection with information 
that you provided to the SEC, then your Form WB-APP, and any 
attachments thereto, must be received by the SEC Office of the 
Whistleblower within sixty (60) days of the date of the Notice of 
Covered Action to which the claim relates.
    [cir] If you are filing your claim in connection with information 
you provided to another agency in a related action, then your Form WB-
APP, and any attachments thereto, must be received by the SEC Office of 
the Whistleblower as follows:
     If a final order imposing monetary sanctions has been 
entered in a related action at the time you submit your claim for an 
award in connection with a Commission action, you must submit your 
claim for an award in that related action on the same Form WB-APP that 
you use for the Commission action.
     If a final order imposing monetary sanctions in a related 
action has not been entered at the time you submit your claim for an 
award in connection with a Commission action, you must submit your 
claim on Form WB-APP within sixty (60) days of the issuance of a final 
order imposing sanctions in the related action.
     You must submit your Form WB-APP to us in one of the 
following two ways:
    [cir] By mailing or delivering the signed form to the SEC Office of 
the Whistleblower, 100 F Street NE, Washington, DC 20549-5631; or
    [cir] By faxing the signed form to (703) 813-9322.

Instructions for Completing Form WB-APP

Section A: Applicant's Information

    Questions 1-3: Provide the following information about yourself:
     First and last name, and middle initial
     Complete address, including city, state and zip code
     Telephone number and, if available, an alternate number 
where you can be reached
     E-mail address

Section B: Attorney's Information. If you are represented by an 
attorney in this matter, provide the information requested. If you are 
not representing an attorney in this matter, leave this Section blank.

    Questions 1-4: Provide the following information about the attorney 
representing you in this matter:
     Attorney's name
     Firm name
     Complete address, including city, state and zip code
     Telephone number and fax number, and
     E-mail address.

Section C: Tip/Complaint Details

    Question 1: Indicate the manner in which your original information 
was submitted to the SEC.
    Question 2a: Include the TCR (Tip, Complaint or Referral) number to 
which this claim relates.
    Question 2b: Provide the date on which you submitted your 
information to the SEC.
    Question 2c: Provide the name of the individual(s) or entity(s) to 
which your complaint related.

Section D: Notice of Covered Action

    The process for making a claim for a whistleblower award begins 
with the publication of a ``Notice of a Covered Action'' on the 
Commission's Web site. This notice is published whenever a judicial or 
administrative action brought by the Commission results in the 
imposition of monetary sanctions exceeding $1,000,000. The Notice is 
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.
    Question 1: Provide the date of the Notice of Covered Action to 
which this claim relates.
    Question 2: Provide the notice number of the Notice of Covered 
Action.
    Question 3a: Provide the case name referenced in Notice of Covered 
Action.
    Question 3b: Provide the case number referenced in Notice of 
Covered Action.

Section E: Claims Pertaining to Related Actions

    Question 1: Provide the name of the agency or organization to which 
you provided your information.
    Question 2: Provide the name and contact information for your point 
of contact at the agency or organization, if known.
    Question 3a: Provide the date on which that you provided your 
information to the agency or organization referenced in question E1.
    Question 3b: Provide the date on which the agency or organization 
referenced in question E1 filed the related action that was based upon 
the information you provided.
    Question 4a: Provide the case name of the related action.
    Question 4b: Provide the case number of the related action.

Section F: Eligibility Requirements

    Question 1: State whether you are currently, or were at the time 
you acquired the original information that you submitted to the SEC a 
member, officer, or employee of the Department of Justice; the 
Securities and Exchange Commission; the Comptroller of the Currency, 
the Board of Governors of the Federal Reserve System, the Federal 
Deposit Insurance Corporation, the Office of Thrift Supervision; the 
Public Company Accounting Oversight Board; any law enforcement 
organization; or any national securities exchange, registered 
securities association, registered clearing agency, the Municipal 
Securities Rulemaking Board
    Question 2: State whether you are, or were you at the time you 
acquired the original information you submitted to the SEC, a member, 
officer or employee of a foreign government, any political subdivision, 
department, agency, or instrumentality of a foreign government, or any 
other foreign financial regulatory authority as that term is defined in 
Section 3(a)(52) of the Securities Exchange Act of 1934.
     Section 3(a)(52) of the Exchange Act (15 U.S.C. Sec.  
78c(a)(52)) currently defines

[[Page 34384]]

``foreign financial regulatory authority'' as ``any (A) foreign 
securities authority, (B) other governmental body or foreign equivalent 
of a self-regulatory organization empowered by a foreign government to 
administer or enforce its laws relating to the regulation of 
fiduciaries, trusts, commercial lending, insurance, trading in 
contracts of sale of a commodity for future delivery, or other 
instruments traded on or subject to the rules of a contract market, 
board of trade, or foreign equivalent, or other financial activities, 
or (C) membership organization a function of which is to regulate 
participation of its members in activities listed above.''
    Question 3: Indicate whether you acquired the information you 
provided to the SEC through the performance of an engagement required 
under the securities laws by an independent public accountant.
    Question 4: State whether you provided the information submitted to 
the SEC pursuant to a cooperation agreement with the SEC or with any 
other agency or organization.
    Question 5: State whether you are a spouse, parent, child or 
sibling of a member or employee of the Commission, or whether you 
reside in the same household as a member or employee of the Commission.
    Question 6: State whether you acquired the information you are 
providing to the SEC from any individual described in Question 1 
through 5 of this Section.
    Question 7: If you answered ``yes'' to questions 1 though 6, please 
provide details.
    Question 8a: State whether you provided the information identified 
submitted to the SEC before you (or anyone representing you) received 
any request, inquiry or demand from the SEC, Congress, or any other 
federal, state or local authority, or any self regulatory organization, 
or the Public Company Accounting Oversight Board about a matter to 
which the information your submission was relevant.
    Question 8b: If you answered ``no'' to questions 8a, please provide 
details. Use additional sheets if necessary.
    Question 9a: State whether you are the subject or target of a 
criminal investigation or have been convicted of a criminal violation 
in connection with the information upon which your application for 
award is based.
    Question 9b: If you answered ``yes'' to question 9a, please provide 
details, including the name of the agency or organization that 
conducted the investigation or initiated the action against you, the 
name and telephone number of your point of contact at the agency or 
organization, if available and the investigation/case name and number, 
if applicable. Use additional sheets, if necessary. If you previously 
provided this information on Form WB- DEC, you may leave this question 
blank, unless your response has changed since the time you submitted 
your Form WB-DEC.

Section G: Entitlement to Award

    This section is optional. Use this section to explain the basis for 
your belief that you are entitled to an award in connection with your 
submission of information to us or to another agency in connection with 
a related action. Specifically address how you believe you voluntarily 
provided the Commission with original information that led to the 
successful enforcement of a judicial or administrative action filed by 
the Commission, or a related action. Refer to Rules 21F-3 and 21F-4 
under the Exchange Act for further information concerning the relevant 
award criteria. You may attach additional sheets, if necessary.
    Rule 21F-6 under the Exchange Act provides that in determining the 
amount of an award, the Commission will evaluate the following factors: 
(a) the significance of the information provided by a whistleblower to 
the success of the Commission action or related action; (b) the degree 
of assistance provided by the whistleblower and any legal 
representative of the whistleblower in the Commission action or related 
action; (c) the programmatic interest of the Commission in deterring 
violations of the securities laws by making awards to whistleblowers 
who provide information that leads to the successful enforcement of 
such laws; and (d) whether the award otherwise enhances the 
Commission's ability to enforce the federal securities laws, protect 
investors, and encourage the submission of high quality information 
from whistleblowers. Address these factors in your response as well.
    Additional information about the criteria the Commission may 
consider in determining the amount of an award is available on the 
Commission's Web site at www.sec.gov/complaint/info_whistleblowers.shtml.

Section H: Declaration

    This section must be signed by the claimant.

    Dated: May 25, 2011.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-13382 Filed 6-10-11; 8:45 am]
BILLING CODE 8011-01-P