Document ID: SEC-2015-1324-0001
Agency: sec
Document Type: Rule
Title: Interpretation of the Whistleblower Rules Under the Securities Exchange Act
Posted Date: 2015-08-10T04:00Z

[Federal Register Volume 80, Number 153 (Monday, August 10, 2015)]
[Rules and Regulations]
[Pages 47829-47831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19508]

 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 80, No. 153 / Monday, August 10, 2015 / Rules 
and Regulations  

[[Page 47829]]

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 241

[Release No. 34-75592]

Interpretation of the SEC's Whistleblower Rules Under Section 21F 
of the Securities Exchange Act of 1934

AGENCY: Securities and Exchange Commission.

ACTION: Interpretation.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (Commission or SEC) is 
issuing this interpretive rule to clarify that, for purposes of the 
employment retaliation protections provided by Section 21F of the 
Securities Exchange Act of 1934 (``Exchange Act''), an individual's 
status as a whistleblower does not depend on adherence to the reporting 
procedures specified in Exchange Act Rule 21F-9(a), but is determined 
solely by the terms of Exchange Act Rule 21F-2(b)(1).

DATES: Effective August 10, 2015.

FOR FURTHER INFORMATION CONTACT: Jane Norberg, Deputy Chief of the 
Office of the Whistleblower, Division of Enforcement, at (202) 551-
4790; Brian A. Ochs, Senior Special Counsel, Office of the General 
Counsel, at (202) 551-5067; Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: 

I. Background

    In Section 922 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Law 111-203, 12 4 Stat. 1376, 1841-49 (2010), 
Congress amended the Exchange Act to add Section 21F, 15 U.S.C. 78u-
6(h)(1), entitled ``Securities Whistleblower Incentives and 
Protection.'' Section 21F established a series of new incentives and 
protections for individuals to report possible violations of the 
federal securities laws. Generally speaking, these incentives and 
protections take three forms--monetary awards for providing 
information, heightened confidentiality assurances, and enhanced 
employment retaliation protections.
    In May 2011, the Commission issued legislative rules 
(``whistleblower rules'') after notice-and-comment rulemaking to 
implement the provisions of Section 21F. The Commission is now issuing 
this interpretive rule to clarify the meaning and application of 
certain of those rules. As explained below, an individual may qualify 
as a whistleblower for purposes of Section 21F's employment retaliation 
protections irrespective of whether he or she has adhered to the 
reporting procedures specified in Rule 21F-9(a). Rule 21F-2(b)(1) alone 
governs the procedures that an individual must follow to qualify as a 
whistleblower eligible for Section 21F's employment retaliation 
protections.

II. Interpretation

    When we promulgated our legislative rules to implement the 
whistleblower program, we recognized that Section 21F is ambiguous on 
the issue of the scope of the employment retaliation protections 
afforded thereunder. On the one hand, Section 21F(h)(1)(A) includes a 
broad catchall provision that prohibits an employer from, among other 
things, retaliating against a whistleblower for ``making disclosures 
that are required or protected under'' the Sarbanes-Oxley Act of 2002, 
the Exchange Act, 18 U.S.C. 1513(e), ``and any other law, rule, or 
regulation subject to the jurisdiction of the Commission.'' \1\ As the 
Commission explained in the adopting release that accompanied the 
whistleblower rules, the reporting covered by this provision includes 
``report[s] to persons or governmental authorities other than the 
Commission.'' \2\ But on the other hand, the employment retaliation 
protections afforded to whistleblowers under Section 21F could be read 
as limited to only those individuals who provide the Commission with 
information; this is because under Section 21F(a)(6) the ``term 
`whistleblower' means any individual who provides . . . information 
relating to a violation of the securities laws to the Commission, in a 
manner established, by rule or regulation, by the Commission.'' 
(Emphasis added).
---------------------------------------------------------------------------

    \1\ Section 21F(h)(1)(A) provides as follows: ``(A) In General. 
No employer may discharge, demote, suspend, threaten, harass, 
directly or indirectly, or in any other manner discriminate against, 
a whistleblower in the terms and conditions of employment because of 
any lawful act done by the whistleblower--(i) in providing 
information to the Commission in accordance with this section; (ii) 
in initiating, testifying in, or assisting in any investigation or 
judicial or administrative action of the Commission based upon or 
related to such information; or (iii) in making disclosures that are 
required or protected under the Sarbanes-Oxley Act of 2002 (15 
U.S.C. 7201 et seq.), this chapter [i.e., the Exchange Act], 
including section 78j-1(m) of this title [i.e., Section 10A(m) of 
the Exchange Act], section 1513(e) of Title 18, and any other law, 
rule, or regulation subject to the jurisdiction of the Commission.''
     Clause (iii), which is a catchall provision, provides 
employment retaliation protection for certain internal reporting at 
public companies and for certain disclosures to the U.S. Department 
of Justice by expressly incorporating the ``disclosures that are 
required or protected under the Sarbanes-Oxley Act,'' which includes 
Sarbanes-Oxley Section 806. Section 806, in turn, prohibits 
employment retaliation against an employee of a public company (or a 
subsidiary thereof) based on certain disclosures of securities law 
violations to ``a person with supervisory authority over the 
employee (or such other person working for the employer who has the 
authority to investigate, discovery, or terminate misconduct)'' or 
to a ``Federal regulatory or law enforcement agency.'' 15 U.S.C. 
1514A(1).
    \2\ Securities Whistleblower Incentives and Protections, 76 FR 
34300, 34304 (June 13, 2011) (emphasis in original).
---------------------------------------------------------------------------

    To resolve this ambiguity, the Commission in Rule 21F-2 promulgated 
two separate definitions of ``whistleblower.'' These two definitions 
apply in different circumstances and each involves its own specified 
reporting procedures that must be satisfied in order for an individual 
to qualify under the particular definition. The first definition, which 
is set forth in Rule 21F-2(a), mirrors the statutory definition of 
whistleblower. It provides in pertinent part that an individual is ``a 
whistleblower if, alone or jointly with others, [the individual] 
provide[s] the Commission with information pursuant to the procedures 
set forth in [Rule] 21F-9(a).'' This definition of whistleblower 
applies only to the award and confidentiality provisions of Section 
21F.
    The second whistleblower definition, which is set forth in Rule 
21F-2(b)(1), provides in pertinent part that, ``[f]or purposes of the 
anti-retaliation protections afforded by Section 21F(h)(1) of the 
Exchange Act . . . , [an

[[Page 47830]]

individual is] a whistleblower if . . . [the individual] provide[d] 
that information in a manner described in Section 21F(h)(1)(A) of the 
Exchange Act[.]'' Rule 21F-2(b)(1)(ii). This definition--unlike the 
whistleblower definition in Rule 21F-2(a) that applies to the award and 
confidentiality provisions--does not require reporting in accordance 
with Rule 21F-9(a)'s procedures.
    We also adopted Rule 21F-9(a) to specify the reporting procedures 
that must be followed by an individual who seeks to qualify as a 
whistleblower under Rule 21F-2(a) and thus to be eligible for an award 
and the heightened confidentiality protections. Rule 21F-9(a) provides 
in pertinent part that, ``[t]o be considered a whistleblower under 
Section 21F . . . , [an individual] must submit [his or her] 
information . . . by either of these methods: (1) Online, through the 
Commission's Web site . . . ; or (2) By mailing or faxing a Form TCR . 
. . to the SEC Office of the Whistleblower . . . .''
    Since our adoption of the whistleblower rules, we have consistently 
understood Rule 21F-9(a) as a procedural rule that applies only to help 
determine an individual's status as a whistleblower for purposes of 
Section 21F's award and confidentiality provisions.\3\ Similarly, it 
has been our consistent view that Rule 21F-2(b)(1) alone controls the 
reporting methods that will qualify an individual as a whistleblower 
for the retaliation protections.
---------------------------------------------------------------------------

    \3\ See generally SEC Staff Report, 2014 Annual Report to 
Congress on the Dodd-Frank Whistleblower Program, 19 (available at: 
http://www.sec.gov/about/offices/owb/annual-report-2014.pdf) 
(explaining that from the time it promulgated the whistleblower 
rules, the Commission has taken the view that the employment 
retaliation protections ``apply not just to individuals who report 
to the SEC but also to individuals when they, among other things, 
report potential securities law violations internally at public 
companies''; also explaining that the Commission has 
``consistently'' opposed the contrary interpretation).
---------------------------------------------------------------------------

    Notwithstanding our view that Rule 21F-2(b)(1) alone controls in 
the context of determining the relevant reporting procedures for an 
individual to qualify as a whistleblower eligible for Section 21F's 
employment retaliation protections, the Court of Appeals for the Fifth 
Circuit expressed some uncertainty about this reading in a recent 
decision.\4\ Although we appreciate that if read in isolation Rule 21F-
9(a) could be construed to require that an individual must report to 
the Commission before he or she will qualify as a whistleblower 
eligible for the employment retaliation protections provided by Section 
21F, that construction is not consistent with Rule 21F-2 and would 
undermine our overall goals in implementing the whistleblower program. 
We reach this conclusion for several reasons.
---------------------------------------------------------------------------

    \4\ Asadi v. G.E. Energy (U.S.A.), L.L.C., 720 F.3d 620, 630 
(5th Cir. 2013).
---------------------------------------------------------------------------

    First, as the text of Rule 21F-2(b)(1) states, ``for purposes of 
Section 21F's employment retaliation protections,'' an individual 
qualifies as a whistleblower entitled to the employment retaliation 
protection whenever he or she makes any of the broader array of 
disclosures specified in Section 21F(h)(1)(A).\5\ The fact that Rule 
21F-2(b)(1) expressly and specifically applies in the employment 
retaliation context demonstrates that it should control over Rule 21F-
9(a).\6\
---------------------------------------------------------------------------

    \5\ In contrast, Rule 21F-2(a)(2) states that ``[t]o be eligible 
for an award,'' an individual must submit original information ``to 
the Commission in accordance with the procedures and conditions 
described in Rules 21F-4, 21F-8, and 21F-9.'' (Emphasis added). In 
addition, Rule 21F-2(a)(1) specifically cross-references the 
procedures set forth in Rule 21F-9(a), whereas Rule 21F-2(b)(1) does 
not contain a similar cross-reference.
    \6\ See, e.g., In re Gulevsky, 362 F.3d 961, 963 (7th Cir. 2004) 
(``[W]hen both a specific and a general provision govern a 
situation, the specific one controls.'') (quoting Morales v. Trans 
World Airlines, Inc., 504 U.S. 374, 384-85, 112 S.Ct. 2031, 119 
L.Ed.2d 157 (1992)).
---------------------------------------------------------------------------

    Second, Rule 21F-2(b)(1)(iii) expressly provides that ``[t]he anti-
retaliation protections apply whether or not [an individual] 
satisf[ies] the requirements, procedures and conditions to qualify for 
an award.'' As Rule 21F-2(a)(2) makes plain, the reporting procedures 
specified in Rule 21F-9(a) are among the procedures that an individual 
must follow to recover an award. The contrast between these provisions 
further supports our interpretation that the availability of employment 
retaliation protection is not conditioned on an individual's adherence 
to the Rule 21F-9(a) procedures.\7\
---------------------------------------------------------------------------

    \7\ We note that, other than Rule 21F-2(b), all of the other 
rules that the Commission adopted to implement the whistleblower 
program deal exclusively with the award and confidentiality 
provisions.
---------------------------------------------------------------------------

    Finally, our interpretation best comports with our overall goals in 
implementing the whistleblower program. Specifically, by providing 
employment retaliation protections for individuals who report 
internally first to a supervisor, compliance official, or other person 
working for the company that has authority to investigate, discover, or 
terminate misconduct, our interpretive rule avoids a two-tiered 
structure of employment retaliation protection that might discourage 
some individuals from first reporting internally in appropriate 
circumstances and, thus, jeopardize the investor-protection and law-
enforcement benefits that can result from internal reporting.\8\ Under 
our interpretation, an individual who reports internally and suffers 
employment retaliation will be no less protected than an individual who 
comes immediately to the Commission. Providing equivalent employment 
retaliation protection for both situations removes a potentially 
serious disincentive to internal reporting by employees in appropriate 
circumstances. A contrary interpretation would undermine the other 
incentives that were put in place through the Commission's 
whistleblower rules in order to encourage internal reporting.\9\
---------------------------------------------------------------------------

    \8\ We note that a contrary interpretation would also create a 
two-tiered scheme of employment retaliation protection even as 
between individuals who report possible securities fraud violations 
or violations of SEC rules or regulations to the Commission; 
specifically, if an individual comes forward to report information 
to the Commission in a manner other than those specified in Rule 
21F-9(a), that individual would not qualify for the employment 
retaliation protections of Section 21F. See Section 21F(h)(1)(A)(i) 
& (ii). But under our reading of Section 21F and the whistleblower 
rules, such individuals would be afforded employment retaliation 
protection under the catchall language of Section 
21F(h)(1)(A)(iii)--which incorporates the protections of Section 806 
of the Sarbanes-Oxley Act--irrespective of the fact that they did 
not comply with the technical reporting requirements of Rule 21F-
9(a).
    \9\ See, e.g., Exchange Act Rule 21F-4(c)(3) (providing that an 
individual 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); Exchange Act Rule 21F-
4(b)(7) (providing that an individual who first reports pursuant 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 will be treated for purposes of 
an award as if the submission to the Commission had been made at the 
earlier internal reporting date); Exchange Act Rule 21F-6(a)(4) 
(providing 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).
---------------------------------------------------------------------------

    For the foregoing reasons, we are issuing this interpretation to 
clarify that, for purposes of Section 21F's employment retaliation 
protections, an individual's status as a whistleblower does not depend 
on adherence to the reporting procedures specified in Rule 21F-9(a).

List of Subjects in 17 CFR Part 241

    Securities.

Amendments to the Code of Federal Regulations

    For the reasons set out above, the Commission is amending title 17, 
chapter II of the Code of Federal Regulations as set forth below:

[[Page 47831]]

PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES 
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER

0
1. Part 241 is amended by adding Release No. 34-75592 to the list of 
interpretive releases to read as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                          Federal Register  Vol.
               Subject                    Release No.                 Date                       and page
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
Interpretation of the SEC's                    34-75592  Aug. 4, 2015..................  [Insert FR Volume
 Whistleblower Rules under Section                                                        Number] FR [Insert FR
 21F of the Securities Exchange Act                                                       Page Number].
 of 1934.
----------------------------------------------------------------------------------------------------------------

    By the Commission.

    Dated: August 4, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015-19508 Filed 8-7-15; 8:45 am]
 BILLING CODE 8011-01-P