Document ID: SEC-2021-1101-0001
Agency: sec
Document Type: Rule
Title: Procedures for the Commission's Use of Certain Authorities under the Securities Exchange Act Of 1934
Posted Date: 2021-08-13T04:00Z

[Federal Register Volume 86, Number 154 (Friday, August 13, 2021)]
[Rules and Regulations]
[Pages 44604-44606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17019]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 241

[Release No. 34-92565]

Procedures for the Commission's Use of Certain Authorities Under 
Rule 21F-3(b)(3) and Rule 21F-6 of the Securities Exchange Act of 1934

AGENCY: Securities and Exchange Commission.

ACTION: Policy statement.

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SUMMARY: The Securities and Exchange Commission (``Commission'' or 
``SEC'') is issuing this statement to clarify how the SEC will proceed 
when addressing certain issues under Exchange Act Rule 21F-3(b)(3) and 
Exchange Act Rule 21F-6 while the staff is preparing and the Commission 
is considering potential amendments to those rules (``Interim Policy-
Review Period''). These procedures will remain in effect until 
withdrawn by the Commission.

DATES: The policy statement is effective: August 13, 2021.

FOR FURTHER INFORMATION CONTACT: Emily Pasquinelli, Acting Chief in the 
Office of the Whistleblower, Division of Enforcement, at (202) 551-
5973; William K. Shirey, Counsel to the Solicitor, Office of the 
General Counsel, at (202) 551-5043; Securities and Exchange Commission, 
100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Background

    Pursuant to the Dodd-Frank Consumer Protection and Wall Street

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Reform Act of 2010 (``Dodd-Frank Act''), Section 21F was added to the 
Securities Exchange Act of 1934 (``Exchange Act''), 15 U.S.C. 78u-1 et 
seq., to establish a new SEC whistleblower award program. Section 21F 
provides that, pursuant to regulations adopted by the SEC, a monetary 
award shall be paid to any eligible whistleblower who provides the SEC 
with original information about a securities law violation that leads 
to the SEC's success in obtaining a monetary order of more than a 
million dollars in an SEC judicial or administrative enforcement action 
(``covered action''). If an eligible whistleblower qualifies for an 
award, the SEC must pay an award that is at least 10%, but no more than 
30%, of the amount of the monetary sanctions collected in the SEC 
enforcement action.
    Section 21F further provides that if the SEC makes a whistleblower 
award in connection with its own enforcement action, the whistleblower 
becomes potentially eligible for an award in connection with any 
related enforcement actions (``related actions'') that are successfully 
litigated using the whistleblower's same original information. The 
potential related enforcement actions must be brought either by a self-
regulatory organization or certain statutorily identified governmental 
authorities (such as the U.S. Department of Justice or a state attorney 
general in connection with a criminal proceeding).\1\
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    \1\ See Exchange Act 21F(a)(5) (defining related action); 
Exchange Act Rule 21F-3(b)(1) (same).
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    In May 2011, the Commission adopted rules to govern the operation 
of the whistleblower award program. In September 2020, the Commission 
adopted various amendments to the Whistleblower Program rules, 
including two amendments that whistleblower advocates and others have 
asserted are unfair to whistleblowers and may risk reducing the 
willingness of individuals to blow the whistle. These amendments were 
made to: (1) Exchange Act Rule 21F-3, which addresses the criteria for 
making an award based on a whistleblower's contributions to the 
successful resolution of a related action; and (2) Exchange Act Rule 
21F-6, which establishes the criteria that the Commission may consider 
when determining the appropriate award amount.
     Relevant Amendment to Exchange Act Rule 21F-3. The 2020 
Amendments added new subparagraph (c) to Rule 21F-3 to govern 
situations where a whistleblower has filed a claim for an award in 
connection with a potential related action but that action is 
potentially also covered by a second, separate award program (such as, 
for example, the federal whistleblower award program that the Internal 
Revenue Service administers, see 26 U.S.C. 7623). New paragraph (c) 
authorizes the Commission to determine, based on the facts and 
circumstances of the claims and misconduct at issue in the potential 
related action (among other factors), whether the Commission's 
whistleblower program or the other whistleblower program has the more 
``direct or relevant connection to the [related] action.'' And 
responsibility for making an award in connection with the potential 
related action will then rest with whichever award program is 
determined to have the more direct or relevant connection to the 
action.
     Relevant Amendment to Exchange Act Rule 21F-6. The 2020 
Amendments added language to permit the Commission to consider, in its 
discretion, the dollar amount of a potential award when making an award 
determination. Before this amendment, the text of the rule (with one 
limited exception) did not expressly afford the Commission authority to 
consider the potential dollar amount of an award when determining 
awards; rather, the text of the rule generally referred to setting 
awards as a percentage of the monetary sanctions recovered.

II. Procedures Available During the Interim Policy-Review Period

    On August 2, 2021, Chair Gensler issued a public statement advising 
that he has directed the staff to prepare for the Commission's 
consideration later this year potential changes to Rules 21F-3(b)(3) 
and Rule 21F-6 to address policy concerns raised by whistleblower 
advocates and others about possible adverse effects of the 2020 
Amendments.\2\
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    \2\ See also SEC's Spring 2021 Regulatory Agenda (publicly 
available at: https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202104&RIN=3235-AN03) (``The Commission is 
considering additional amendments to the rules governing the 
Whistleblower Program established by the Dodd-Frank Act.'').
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    While the staff is preparing and the Commission is considering 
potential additional rulemaking, the procedures discussed below are 
available to whistleblowers with claims pending during the Interim 
Policy-Review Period so that they are not disadvantaged under the 
components of Rule 21F-3(b)(3) and Rule 21F-6 that may be revised. 
These interim procedures are consistent with the SEC's overarching goal 
of protecting investors and the United States capital markets by 
encouraging whistleblowers to come forward to report violations of the 
federal securities laws and then rewarding them when their information 
leads to successful enforcement actions.

A. Exchange Act Rule 21F-3(b)(3)

    For any claim that may be subject to Rule 21F-3(b)(3) during the 
Interim Policy-Review Period, the Commission directs as follows:
    1. Before providing a preliminary determination to a claimant, or a 
proposed recommendation to the Commission, the staff shall consider 
whether to recommend that the Commission's exemptive authority under 
Section 36(a) of the Exchange Act \3\ should be utilized to permit an 
award on a potential related action irrespective of the limitations of 
Rule 21F-3(b)(3) if:
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    \3\ In pertinent part, Section 36(a) provides that ``by rule, 
regulation, or order, may conditionally or unconditionally exempt 
any person . . . from any provision or provisions of [the Exchange 
Act] or of any rule or regulation thereunder, to the extent that 
such exemption is necessary or appropriate in the public interest, 
and is consistent with the protection of investors.''
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    (a) The alternative whistleblower program has an award cap or award 
range that could disadvantage the particular claimant; \4\ or
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    \4\ See, e.g., 12 U.S.C. 4205(d)(1) (establishing a 
whistleblower award program in connection with the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989, but 
capping awards at $1.6 million).
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    (b) the Commission is aware or the claimant demonstrates a 
likelihood that a condition or exclusion would apply to his or her 
award claim under the alternative award program and the staff 
determines that the claimant would likely obtain an award were he or 
she permitted to proceed under the SEC's award program.
    2. For any other award claim under Rule 21F-3(b)(3) for which the 
staff determines that an alternative whistleblower program has a ``more 
direct or relevant connection'' to the potential related action than 
the Commission's award program does, the staff will inform the claimant 
of its assessment. The claimant may then request that the related-
action award claim held in abeyance during the Interim Policy-Review 
Period.\5\ Further, any related-action award claim that is held in 
abeyance shall not impact the

[[Page 44606]]

timely processing of any award claim arising from a covered Commission 
enforcement action that is successfully litigated using the claimant's 
same original information.
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    \5\ The Commission contemplates that there should be no impact 
on the timely processing of any related-action award claim that the 
staff deems to have a ``more direct or relevant connection to the 
Commission's whistleblower program.'' However, if a majority of the 
Commission should subsequently disagree with that determination, the 
claimant shall be notified and may request to have the related-
action award claim held in abeyance during the Interim Policy-Review 
Period.
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B. Exchange Act Rule 21F-6

    With respect to Rule 21F-6, the Commission at the time it adopted 
the 2020 rulemaking amendments explained that the amendment in question 
was a clarification of discretionary authority the Commission already 
possessed.\6\ The Commission anticipates that, going forward, it will 
continue its practice of considering dollar amounts only in connection 
with provisions of the rules that explicitly contemplate the use of 
such discretion to raise awards (i.e., law enforcement interest prong 
of 21F-6(a)(3) and the application of the presumption embodied in Rule 
21F-6(c)). In the unlikely event that the staff or the Commission 
should consider deviating from this practice, the staff will inform the 
claimant that such action is being considered. The claimant may then 
request that the matter be held in abeyance during the Interim Policy-
Review Period.
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    \6\ The extent to which the amendment was a clarification was a 
point of disagreement at the time that the Commission adopted the 
amended rules in 2020.
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III. Other Matters

    Publication for notice and comment is not required under the 
Administrative Procedure Act (``APA'') pursuant to the exemption for 
agency rules of organization, procedure, or practice.\7\ It follows 
that the requirements of the Regulatory Flexibility Act do not 
apply.\8\ The effective date is August 13, 2021. In accordance with the 
APA,\9\ we find that there is good cause to establish an effective date 
less than 30 days after publication. The Commission believes that 
establishing an effective date less than 30 days after publication of 
this document is necessary to clarify how the SEC will proceed when 
addressing certain issues under Exchange Act Rule 21F-3(b)(3) and 
Exchange Act Rule 21F-6 while the staff is preparing and the Commission 
is considering potential amendments to those rules.
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    \7\ 5 U.S.C. 553(b)(A).
    \8\ 5 U.S.C. 601-612.
    \9\ 5 U.S.C. 553(d)(3).
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    The Commission has determined that the foregoing relates only to 
agency procedures and does not substantially affect the rights or 
obligations of non-agency parties. The foregoing is therefore not a 
``rule'' under the Congressional Review Act, 5 U.S.C. 804(3)(C).
    Finally, the Commission has adopted the foregoing under the 
authority set forth in Sections 3(b), 21F, and 23(a) of the Exchange 
Act.

    By the Commission.

    Dated: August 5, 2021.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-17019 Filed 8-12-21; 8:45 am]
BILLING CODE 8011-01-P