Proposed Rule2022-03223
The Commission's Whistleblower Program Rules
Primary source
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Published
February 18, 2022
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission" or "SEC") is proposing for public comment amendments to the Commission's rules implementing its whistleblower program. The Securities Exchange Act of 1934 ("Exchange Act") provides for, among other things, the issuance of monetary awards to any eligible whistleblower who voluntarily 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 a covered judicial or administrative action brought by the SEC ("covered action"). If an eligible whistleblower qualifies for an award, Section 21F requires an award that is at least 10 percent, but no more than 30 percent, of the amount of the monetary sanctions collected in the covered action. The receipt of an award in a covered action also enables a whistleblower to qualify for an award in connection with judicial or administrative actions based on the whistleblower's same original information and brought by the U.S. Department of Justice ("DOJ") and certain other statutorily identified agencies or entities ("related actions"). The proposed rules would make two substantive changes to the Commission's whistleblower rules that implement the whistleblower program, as well as several conforming amendments and technical corrections.
Full Text
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<title>Federal Register, Volume 87 Issue 34 (Friday, February 18, 2022)</title>
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[Federal Register Volume 87, Number 34 (Friday, February 18, 2022)]
[Proposed Rules]
[Pages 9280-9297]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-03223]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-94212; File No. S7-07-22]
RIN 3235-AN03
The Commission's Whistleblower Program Rules
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'' or
``SEC'') is proposing for public comment amendments to the Commission's
rules implementing its whistleblower program. The Securities Exchange
Act
[[Page 9281]]
of 1934 (``Exchange Act'') provides for, among other things, the
issuance of monetary awards to any eligible whistleblower who
voluntarily 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 a covered judicial or
administrative action brought by the SEC (``covered action''). If an
eligible whistleblower qualifies for an award, Section 21F requires an
award that is at least 10 percent, but no more than 30 percent, of the
amount of the monetary sanctions collected in the covered action. The
receipt of an award in a covered action also enables a whistleblower to
qualify for an award in connection with judicial or administrative
actions based on the whistleblower's same original information and
brought by the U.S. Department of Justice (``DOJ'') and certain other
statutorily identified agencies or entities (``related actions''). The
proposed rules would make two substantive changes to the Commission's
whistleblower rules that implement the whistleblower program, as well
as several conforming amendments and technical corrections.
DATES: Comments should be received on or before April 11, 2022.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/submitcomments.htm">https://www.sec.gov/rules/submitcomments.htm</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#ed9f988188c08e8280808883999ead9e888ec38a829b"><span class="__cf_email__" data-cfemail="e193948d84cc828e8c8c848f9592a1928482cf868e97">[email protected]</span></a>. Please include
File Number S7-07-22 on the subject line; or
Paper Comments
<bullet> Send paper comments to, Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number S7-07-22. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method of submission. The Commission will post all comments on the
Commission's website (<a href="http://www.sec/gov/rules/proposed.shtml">http://www.sec/gov/rules/proposed.shtml</a>).
Typically, comments are also available for website viewing and printing
in the Commission's Public Reference Room, 100 F Street NE, Washington,
DC 20549, on official business days between the hours of 10 a.m. and 3
p.m. Operating conditions may limit access to the Commission's public
reference room. All comments received will be posted without change.
Persons submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Emily Pasquinelli, Office of the
Whistleblower, Division of Enforcement, at (202) 551-5973; Hannah W.
Riedel, Office of the General Counsel, at (202) 551-7918, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to amend the
rules set forth in the table below.
Amendments
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Commission reference CFR citation (17 CFR)
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Rule 21F-3................................... Sec. 240.21F-3.
Rule 21F-4................................... Sec. 240.21F-4.
Rule 21F-6................................... Sec. 240.21F-6.
Rule 21F-8................................... Sec. 240.21F-8.
Rule 21F-10.................................. Sec. 240.21F-10.
Rule 21F-11.................................. Sec. 240.21F-11.
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Table of Contents
I. Introduction
A. The Whistleblower Award Program
B. Overview of the Proposed Rules
II. Discussion of Proposed Rules
A. Proposed Amendment to Exchange Act Rule 21F-3(b) Defining a
``Comparable'' Whistleblower Award Program for Related Actions
1. The Comparability Approach
2. Whistleblower's Choice Option
3. Other Alternatives
B. Proposed Amendment to Exchange Act Rule 21F-6 Regarding Size
of Award
C. Proposed Technical Amendments to Rule 21F-4(c) and Rule 21F-
8(e)
III. General Request for Public Comment
IV. Economic Analysis
A. Economic Baseline
B. Proposed Rules
1. Proposed Rule 21F-3(b)(3)
2. Proposed Rule 21F-6
C. Additional Alternatives
D. Effects of the Proposed Rules on Efficiency, Competition, and
Capital Formation
V. Small Business Regulatory Enforcement Fairness Act
VI. Regulatory Flexibility Act Certification
VII. Statutory Basis
I. Introduction
A. The Whistleblower Award Program
Section 21F of the Exchange Act, among other things, 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 Federal securities
laws and regulations that leads to the successful enforcement of a
covered action and certain related actions brought by other statutorily
identified authorities.\1\ Section 21F provides that an award must be
at least 10 percent, but no more than 30 percent, of the amount of the
monetary sanctions collected in the action for which the award is
granted.\2\ Whistleblower awards are paid from a dedicated Investor
Protection Fund (``IPF'') created by Congress.\3\
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\1\ 15 U.S.C. 78u-6(a)(5) (``The term `related action', when
used with respect to any judicial or administrative action brought
by the Commission under the securities laws, means any judicial or
administrative action brought by an entity described in subclauses
(I) through (IV) of subsection (h)(2)(D)(i) [of the Exchange Act]
that is based upon the original information provided by a
whistleblower . . . that led to the successful enforcement of the
Commission action.'').
\2\ See 15 U.S.C. 78u-6(b).
\3\ The IPF, which was established as part of the whistleblower
program, is a statutorily established fund within the U.S.
Department of the Treasury from which Commission whistleblower
awards are paid. See Exchange Act Section 21F(g)(3), 15 U.S.C. 78u-
6. The IPF operates under a continuing appropriation and has a
statutorily created self-replenishing process. Id.
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In May 2011, the Commission adopted a comprehensive set of rules to
implement the whistleblower program.\4\ Those rules, which were
codified at 17 CFR 240.21F-1 through 240.21F-17, provide the operative
definitions, requirements, and processes related to the whistleblower
program. In June 2018, the Commission proposed amendments to the rules
(``Proposing Release'' or ``2018 Proposal'').\5\ After reviewing the
numerous public comments that were received in response to the 2018
Proposal, the Commission adopted various amendments to the
whistleblower program rules (referred to interchangeably as ``Adopting
Release,'' ``Final Rule,'' and ``2020 Amendments'') \6\ in September
2020.\7\
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\4\ Securities Whistleblower Incentives and Protections, Release
No. 34-64545, 76 FR 34300 (June 13, 2011). See also Proposed Rules
for Implementing the Whistleblower Provisions of Section 21F of the
Securities Exchange Act of 1934, 75 FR 70502 (Nov. 17, 2010).
\5\ Whistleblower Program Rules, Release No. 34-83557, 83 FR
34702 (proposed June 28, 2018) (17 CFR 240.21F-1 through 240.21F-
18).
\6\ Whistleblower Program Rules, Release No. 34-89963, 85 FR
70898 (Sept. 23, 2020) (17 CFR 240.21F-1 through 17 CFR 240.21F-18).
\7\ These amendments included a new rule 17 CFR 240.21F-18.
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Two of the rules amended in September 2020 are the subject of this
proposing release. The first is 17 CFR 240.21F-3(b)(3) (Rule 21F-
3(b)(3)), which addresses situations in which the SEC's whistleblower
program and at least one other whistleblower program
[[Page 9282]]
may apply to the same related action. The 2020 Amendments authorized
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 alternative whistleblower program has the more ``direct or
relevant connection to the [non-Commission] action.'' \8\ If the
Commission determines that the other program has the more direct or
relevant connection, the Commission will not deem the action a related
action. Any award to be made on the action must come from the other
whistleblower program.
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\8\ See Rule 21F-3(b)(3)(i) through (ii).
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The second rule that is the subject of this proposing release is
Rule 21F-6, which concerns the Commission's discretion to apply award
factors and set award amounts. Before the 2020 Amendments, the rule
text (with the exception of Rule 21F-6(a)(3)) did not explicitly
address whether the Commission could consider the potential dollar
amount of an award when setting awards; rather, the rule text generally
referred to setting awards as a percentage of the monetary sanctions
recovered.\9\ The 2020 Amendments added language to Rule 21F-6 stating
that the Commission has discretion to consider the dollar amount of a
potential award when making an award determination.\10\
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\9\ See Proposing Release, 83 FR 34704.
\10\ See Adopting Release, 85 FR 70910 (``To clarify the
Commission's discretionary authority, we are modifying Rule 21F-6 to
state that the Commission may consider the factors, and only the
factors set forth in in Rule 21F-6, in relation to the facts and
circumstances of each case in setting the dollar or percentage
amount of the award. This new language, by expressly referring to
setting the dollar or percentage amount of the award, makes clear
that the Commission and the Claims Review Staff (CRS) may, in
applying the Award Factors specified in Rule 21F-6(a) and (b) and
setting the Award Amount, consider the potential dollar amount that
corresponds to the application of any of the factors.'') (internal
footnotes omitted).
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B. Overview of the Proposed Rules
The Commission is considering further revising Rule 21F-3(b)(3) and
Rule 21F-6, as well as making some related conforming modifications to
Rules 21F-10 and 21F-11 and technical amendments to Rule 21F-4(c) and
Rule 21F-8(e). These proposed rule changes are being offered for public
comment to help ensure that eligible, meritorious whistleblowers are
appropriately rewarded for their efforts and that our rules do not
inadvertently create disincentives to reporting potential securities-
law violations to the Commission.\11\ The Commission anticipates that
all of the proposed rule changes, if adopted, would apply to all new
whistleblower award applications filed after the effective date of the
amended final rules, as well as all whistleblower award applications
that are pending and have not been the subject of a final order of the
Commission by the effective date.
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\11\ In anticipation of the current proposal, the Commission
released a statement on August 5, 2021, that identifies procedures
that are available to whistleblowers with claims pending while the
current rulemaking is ongoing. Release No. 34-81207 (Aug. 5, 2021),
available at <a href="https://www.sec.gov/rules/policy/2021/34-92565.pdf">https://www.sec.gov/rules/policy/2021/34-92565.pdf</a>.
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1. Allowing awards for related actions where an alternative award
program could yield an award that is meaningfully lower than the
Commission's whistleblower program would allow. The Commission is
proposing to amend Rule 21F-3(b)(3) to revise the scope of potential
related actions (i.e., the non-Commission actions) that could be
covered by the SEC's whistleblower program in situations where another
award program might also apply to that same action. Currently, Rule
21F-3(b)(3) provides that if another award program might apply to an
action, then the Commission will deem the action a potential related
action (and process the application further to determine if an award is
appropriate) only if the SEC's whistleblower program has the ``more
direct or relevant connection'' to the action (relative to the other
program's connection to the action).\12\ Under the proposed amendments
to Rule 21F-3(b)(3) (see Part II(A)(1) below), if a claimant files a
related-action award application, and the alternative award program is
not comparable, either because the statutory award range is more
limited, or because awards are subject to an award cap (and the non-
Commission action otherwise satisfies the criteria in Rule 21F-
3(b)(1)), the Commission would treat the non-Commission action as a
related action covered by the SEC's program (assuming the other
criteria of Rule 21F-3(b) are met) regardless of whether the
alternative award program has a more direct or relevant connection to
the action.\13\ The Comparability Approach would also provide, however,
that the Commission would deem a matter eligible for related-action
status without regard to which program has the more direct and relevant
connection to the action, if the maximum award in the related action
would not exceed $5 million. (As discussed in Part II(A)(1)-(2), the
Commission is also requesting public comment on several other
alternative approaches, including an option that would allow a
meritorious whistleblower to decide whether to receive a related-action
award from the Commission or the authority administering the other
award program; the whistleblower would not be required to select which
program to receive the award from until both programs had determined
the award amount they would pay.)
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\12\ Under Rule 21F-3(b)(3) as currently drafted, if the
Commission fails to find that its program has the more direct or
relevant connection to the action, then the Commission will deny the
related-action award claim. The claimant is then left to pursue any
claim for a whistleblower award with the other award program.
\13\ 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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2. Clarifying the Commission's use of discretion to consider dollar
amounts when determining awards. The Commission is also proposing for
public comment a new paragraph (d) to Rule 21F-6, which would affirm
the Commission's statutory authority to consider the dollar amount of a
potential award when determining the award amount, but clarifies that
the Commission may exercise its discretion to use that authority for
the limited purpose of increasing the award amount and may not use it
for the purpose of decreasing an award (either when applying the award
factors under Rule 21F-6(b) or otherwise).
3. Conforming and technical amendments. In addition to the above
substantive amendments, the Commission is proposing minor modifications
to Exchange Act Rules 21F-10 and 21F-11 so that those rules conform to
the proposed changes discussed above.\14\ Further, the Commission is
proposing technical revisions to Rule 21F-4(c) and to Rule 21F-8 to
correct errors in the rule text.
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\14\ See infra notes 24 and 57.
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II. Discussion of Proposed Amendments
A. Proposed Amendment to Exchange Act Rule 21F-3(b) Defining a
``Comparable'' Whistleblower Award Program for Related Actions
Under Exchange Act Section 21F(b), a whistleblower who obtains an
award based on a Commission covered action also may be eligible for an
award based on monetary sanctions that are collected in a related
action. Exchange Act Section 21F(a)(5) and Exchange Act Rule 21F-
3(b)(1) provide that a related action is a judicial or administrative
action that is:
[[Page 9283]]
(i) Brought by DOJ, an appropriate regulatory authority (as defined
in Exchange Act Rule 21F-4(g)), a self-regulatory organization (as
defined in Exchange Act Rule 21F-4(h)), or a state attorney general in
a criminal case;
(ii) Based on the same original information that the whistleblower
voluntarily provided both to the Commission and to the authority or
entity that brought the related action; \15\ and
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\15\ A matter will qualify as a related action even if the
whistleblower did not provide the original information to the other
authority or entity if the Commission itself provided the
whistleblower's original information to the authority or entity. Cf.
17 CFR 240.21F-7(a)(2) (Rule 21F-7(a)(2)).
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(iii) Resolved in favor of the authority or entity that brought the
action, and the whistleblower's information led to the successful
resolution.\16\
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\16\ Exchange Act Rule 21F-3(b)(2) provides that essentially the
same criteria that are used to assess whether a whistleblower should
receive an award in connection with a Commission covered action will
be applied to determine whether the whistleblower should also
receive an award in connection with the potential related action.
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In September 2020, the Commission adopted a new Exchange Act Rule
21F-3(b)(3) to address situations where both the Commission's
whistleblower program and at least one other, separate whistleblower
award program might apply (hereinafter ``the Multiple-Recovery
Rule'').\17\ As the Commission explained, the potential for another
whistleblower award program to apply to a potential related action--and
the accompanying risk of multiple recoveries--had become increasingly
apparent over the course of the Commission's decade of experience
implementing and administering the award program.\18\
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\17\ The Commission stated that the purpose of Rule 21F-3(b)(3)
was to prevent multiple recoveries, see Adopting Release, 85 FR
70908, and cited as the basis for adopting such rules the provision
in Exchange Act Section 21F(b)(1) that states awards are to be made
based on ``regulations prescribed by the Commission,'' the specific
rulemaking authority of Exchange Act Section 21F(j) to issue rules
governing the whistleblower program, and the Commission's general
rulemaking authority in Exchange Act Section 23(a), see id. at 70902
& n.20.
\18\ See id. at 70908.
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The Multiple-Recovery Rule authorizes the Commission to pay an
award on an action potentially covered by a second award program only
if the Commission determines that the SEC's whistleblower program has a
more direct or relevant connection to the action than the other award
program. To assess whether a potential related action has a more
``direct or relevant'' connection to the SEC's program or the other
potentially applicable program, the Multiple-Recovery Rule provides
that the Commission will consider: (i) The relative extent to which the
misconduct charged in the potential related action implicates the
public policy interests underlying the Federal securities laws (such as
investor protection) rather than other law-enforcement or regulatory
interests; (ii) the degree to which the monetary sanctions imposed in
the potential related action are attributable to conduct that also
underlies the Federal securities law violations that were the subject
of the Commission's covered action; and (iii) whether the potential
related action involves state-law claims, as well as the extent to
which the state may have a whistleblower award program that potentially
applies to that type of law-enforcement action.
Another provision of the Multiple-Recovery Rule directs that if a
related-action claimant has already received an award from another
program, that claimant will not receive an award from the Commission.
Relatedly, the Multiple-Recovery Rule provides that if a related-action
claimant was denied an award from the other program, the claimant will
not be able to re-adjudicate any fact decided against him or her by the
other program. And if the Commission decides that the SEC's
whistleblower program has the more direct or relevant connection to the
potential related action, the Multiple-Recovery Rule provides that no
payment will be made on the award unless the claimant promptly and
irrevocably waives any claim to an award from the other program.
In adding the Multiple-Recovery Rule to Exchange Act Rule 21F-3(b),
the Commission explained that it was ``codif[ying] the approach the
Commission has previously taken where another award program is
available in connection with an action for which a related-action award
is sought.'' \19\ Further, the Commission explained that permitting
multiple recoveries on the same related action could be viewed as
inconsistent with congressional intent in two respects. First, it could
result in a whistleblower recovering in excess of the 30 percent
ceiling that Congress has established for Federal whistleblower award
programs in the modern era.\20\ Second, the related-action component of
the SEC's Whistleblower Program is structured under Section 21F of the
Exchange Act as a supplemental component of the program. If the
Commission is able to bring a successful covered action based on the
whistleblower's original information, then the whistleblower is given
an opportunity to obtain additional financial rewards for the ancillary
recoveries that may be collected in a related action based on that same
original information. But the Commission explained that neither the
text nor the legislative history of Section 21F indicated that Congress
intended this ancillary component of the SEC's whistleblower program to
displace or otherwise operate as an alternative to a more directly
relevant award program that may be specifically tailored to apply to a
specific type or class of actions. The Commission also observed that in
situations where another program would apply, the other award program
should provide a sufficient financial incentive to encourage
individuals to report misconduct without the need for any additional
incentive from the related-action component of the Commission's
whistleblower program.\21\
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\19\ Id.
\20\ The Commission further explained that it was unaware of any
time in the modern era in which legislation had authorized the
Federal Government to share with a whistleblower more than 30
percent of its monetary recovery from a successful action.
\21\ See 85 FR 70909.
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Since the Multiple-Recovery Rule was adopted, the Commission has
received (or otherwise learned of the potential for) a number of
whistleblower award applications involving potential related actions
that implicate (or may implicate) at least one other award program. Of
particular significance, some of these recent matters concern the
whistleblower award program that is administered in connection with the
Financial Institutions Reform, Recovery and Enforcement Act of 1989
(``FIRREA''), which has a statutory cap of only $1.6 million (``FIRREA
awards program'').\22\ As suggested above, an important consideration
underlying the adoption of the Multiple-Recovery Rule was that--even
with the Commission's determination not to pay on potential related
actions that have a more direct or relevant connection to an
alternative award program--the adoption of the Multiple-Recovery rule
would not appreciably impact a potential whistleblower's financial
incentive to come forward. As the Commission explained, this is because
potential ``whistleblowers would still stand to receive an award'' from
the Commission on the covered action and from the other program on the
potential related
[[Page 9284]]
action.\23\ This assumption may not be justified, however, under
limited circumstances in which an alternate whistleblower program
provides significantly fewer financial incentives than the Commission's
program. This seems most likely where the other award program has
either a much lower award range than the Commission's program or has an
absolute dollar ceiling for all awards.
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\22\ See Attorney General Holder's Remarks on Financial Fraud
Prosecutions at NYU School of Law (Sept. 17, 2014) (referring to
this $1.6 million cap as a ``paltry sum'' that ``is unlikely to
induce an employee to risk his or her lucrative career in the
financial sector'' by reporting financial crimes).
\23\ See 85 FR 70908.
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Relatedly, we are concerned that the Multiple-Recovery Rule as
currently structured creates a risk that two otherwise similarly
situated meritorious whistleblowers whose tips led to comparably
successful Commission and related actions would receive meaningfully
different awards based solely on the award program to which the actions
in question were more directly related or relevant. This potential for
disparate treatment seems needlessly unfair given that the potential
disparate results are not compelled by the statute, would not be
connected to any relevant differences in either the claimants' own
efforts or the facts of the underlying related actions (such as the
amounts collected, which are relevant to calculating the money paid to
whistleblowers under Section 21F(b) of the Exchange Act), and would not
be grounded in any obvious SEC policy goals or programmatic
considerations.
Based on the foregoing concerns, the Commission is offering for
public comment several proposals to change Rule 21F-3(b)(3). The
principal proposal being offered is the ``Comparability Approach'' (see
Part II(A)(1) below). The Comparability Approach would retain the
current rule but would make certain narrowly tailored amendments to
address the fairness concerns identified above. The Comparability
Approach would also allow the Commission to deem a matter eligible for
related-action status in any case in which the maximum award that the
Commission could pay on that action would not exceed $5 million,
without assessing which of the two comparable whistleblower programs
had the more direct and relevant connection to the action.
Another alternative being offered for public comment is the
``Whistleblower's Choice Option'' (see Part II(A)(2) below). It would
involve a repeal of current Rule 21F-3(b)(3) in favor of an approach
that would no longer permit the Commission the exclusive authority to
forgo processing an otherwise meritorious award claim simply because
another award program may have a more direct or relevant connection to
the underlying action.\24\
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\24\ The Commission intends to make a clarifying amendment to
Exchange Act Rule 21F-11(c) so that it states that the Office of the
Whistleblower is authorized to contact the agency or entity
administering an alternative award program to ensure that the
related-action award claimant has fully complied with the terms of
Exchange Act Rule 21F-3(b)(3) when a second, alternative award
program is implicated by an underlying action. If the Commission is
ultimately unable to receive the information that it needs to ensure
to its satisfaction that the claimant has fully complied with Rule
21F-3(b)(3), this can be a basis for denying the award claim. The
authorization that would be expressly added to Rule 21F-11(c) by the
proposed amendment follows presently from the operation of existing
Rule 21F-3(b)(3) and the proposed amendment would merely confirm
that authority.
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Finally, the Commission is offering for public comment the ``Offset
Approach'' and the ``Topping Off Approach'' (see Part II(A)(3) below).
Under the Offset Approach, Rule 21F-3(b)(3) would be repealed in its
entirety in favor of a rule that would allow the Commission to make an
award irrespective of the potential that another award program might
apply, but to prevent a double recovery the Commission would offset
from the Commission's award any amount that other program paid on the
action. Under the Topping-Off Approach, the current Rule 21F-3(b)(3)
framework would be retained but the Commission would be granted the
discretion to ``top off'' a covered-action award--that is, increase the
award amount on the Commission's own covered action (up to a total
award of 30 percent)--if the Commission, in its discretion, concludes
that the other whistleblower program's award for the non-SEC action was
inadequate.
1. The Comparability Approach
The Comparability Approach primarily focuses on situations where
the maximum potential award that the alternative award program could
authorize for an action would be an amount meaningfully lower than the
maximum related-action award the Commission could grant (i.e., 30
percent ``in total, of what has been collected of the monetary
sanctions imposed'') either because the program involves a different
award range or because it imposes a statutory award cap.\25\ An example
of an award program that lacks a range comparable to the Commission's
program is the Indiana securities-law whistleblower award program;
under the Indiana program, whistleblower awards may not exceed 10
percent of the money collected in a state securities-law enforcement
action.\26\ Examples of award programs that have low statutory caps are
the FIRREA award program,\27\ which has a $1.6 million cap,\28\ and the
program administered in connection with the Major Frauds Act, which has
a cap of $250,000.\29\
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\25\ The proposed rule would also provide that a program would
not be deemed comparable if awards under that program are entirely
discretionary. Our own experience with a discretionary award program
prior to the enactment of Exchange Act Section 21F's mandatory award
program leads us to have significant concerns that discretionary
programs may not have the same programmatic importance to agencies,
and may not be administered with the same rigor, as mandatory award
programs. See Office of the Inspector General, Assessment of the
SEC's Bounty Program, Report No. 474 (March 29, 2009), at 4-5,
available at <a href="http://www.sec.gov/about/offices/oig/reports/audits/2010/474.pdf">www.sec.gov/about/offices/oig/reports/audits/2010/474.pdf</a> (stating that the Commission made five awards totaling less
than $160,000 over the 20-year period from 1989 until 2009 under its
former insider-trading ``bounty program'' for which ``bounty
determinations, including whether, to whom, or in what amount to
make payments, [were] within the sole discretion of the SEC''). That
prior experience also suggests to us that discretionary programs may
garner lower levels of interest from the public because of the
additional uncertainty of receiving an award. See id. (explaining
that the ``Commission ha[d] not received a large number of
applications from individuals seeking a bounty'' and that the
program was ``not widely recognized inside or outside the
Commission''). Together these factors may substantially reduce the
willingness of whistleblowers to blow the whistle. See Letter from
Kohn, Kohn & Colapinto, LLP, Comment offered in connection with
Proposing Release No. 34-83557 regarding Related Actions and
Proposed Rule 21F-3(b)(4) (Sept. 10, 2020), available at <a href="https://www.sec.gov/comments/s7-16-18/s71618-7797952-223596.pdf">https://www.sec.gov/comments/s7-16-18/s71618-7797952-223596.pdf</a> (stating
that discretionary award programs do ``not meet the same standards''
that Exchange Act Section 21F establishes). To forestall this risk,
we think it appropriate to deem discretionary programs presumptively
lacking sufficient comparability to our own program for purposes of
Proposed Rule 21F-3(b)(3).
\26\ See Indiana Code 23-19-7-1 et seq.
\27\ FIRREA authorizes DOJ to sue for civil penalties when a
person engages in certain criminal conduct, including mail, wire,
and bank fraud. A court may impose penalties up to $1 million per
violation or $5 million for a continuing violation. 12 U.S.C.
1833a(b)(1) and (2). Further, a court may award greater penalties
depending on the amount of the violator's gain or victims' losses
that are connected to the FIRREA violations. Id. at 1833a(b)(3)
(providing that a court may impose higher pecuniary penalties if
either the amount of the wrongdoer's pecuniary gain from the FIRREA
violation or the amount of the pecuniary loss to a victim exceeds
the penalty amounts specified in the statute, although any penalty
may not exceed the total amount of the wrongdoer's gains or the
victims' losses).
\28\ Under the FIRREA award program a whistleblower is entitled
to between 20 percent and 30 percent of the first $1 million
recovered pursuant to the execution of a judgment, order, or
settlement, between 10 percent and 20 percent of the next $4 million
recovered, and between 5 percent and 10 percent of the next $5
million recovered. Id. at 4205(d)(1)(A)(i). Thus, awards under this
program are effectively capped at $1.6 million (i.e., 30 percent of
$1 million [$300,000] plus 20 percent of the next $4 million
[$800,000], plus 10 percent of the next $5 million [$500,000] but
nothing beyond that). Id. at 4205(d)(2).
\29\ 18 U.S.C. 1031(g).
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The Comparability Approach would address situations involving
similar low award caps by generally excluding them
[[Page 9285]]
from the Multiple-Recovery Rule.\30\ Specifically, under the
Comparability Approach, the Multiple-Recovery Rule would not apply if
the maximum potential award that the other program could grant in
connection with a related action would be meaningfully lower than the
maximum amount the Commission could award to that whistleblower on that
same action.\31\ To implement this modification, the opening sentence
of Rule 21F-3(b)(3) would be amended to provide that the rule does not
apply unless the other whistleblower program is a ``comparable
whistleblower program.'' \32\ ``Comparable whistleblower program''
would be defined in a new paragraph (b)(3)(iv)(A) of Rule 21F-3 to mean
an award program that does not have an award range or award cap that
would restrict the total maximum potential award from that program to
an amount that is meaningfully lower than the maximum potential award
to all eligible claimants (in dollar terms) that the Commission could
make on the particular action.\33\ Taken together, these proposed
amendments if adopted would mean that when the Commission determines
that another award program fails to qualify as a ``comparable award
program,'' Rule 21F-3(b)(3) would not apply and could not be used as a
basis for denying an award on the potential related action.\34\
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\30\ The FIRREA award program and the Major Fraud Act award
program are discretionary, and thus would be excluded under the
Comparability Approach for this additional reason, see supra note
25. As a result, the low-award caps that those programs establish
are referenced here purely for illustrative purposes.
\31\ In assessing comparability, the Commission intends to
compare the total amount that the other award program could award to
all eligible whistleblowers for the potential related action to the
total amount that the Commission's award program could make to those
individuals based on that same potential related action.
\32\ The words ``another whistleblower program'' in the opening
sentence of Rule 21F-3(b)(3) would be replaced with ``comparable
whistleblower program.''
\33\ As discussed supra in note 25, an award program would not
be comparable if it were discretionary instead of mandatory. To
effectuate this, new paragraph (b)(3)(iv)(A) would also provide that
an award program is not comparable if the authority or entity
administering the other program possesses sole discretion to deny an
award notwithstanding the fact that a whistleblower otherwise
satisfies the established eligibility requirements and award
criteria.
\34\ The Commission has not proposed to include eligibility
criteria or award conditions in the assessment of an award program's
comparability to the Commission's. This is because other authorities
that are administering whistleblower programs may shape those
programs through eligibility criteria and award conditions that
reflect each agency's own policy choices (or in some instances
Congress's policy choices), just as many of the Commission's own
eligibility criteria and award conditions reflect important policy
considerations. But the Commission also recognizes that there could
be some instances where the lack of comparability between the
eligibility criteria and award conditions of the Commission's
whistleblower program and those of another agency's whistleblower
program could create an undue burden or significant hardship to the
claimant. When these instances arise, the Commission could employ
its discretionary waiver authority under Section 36(a) of the
Exchange Act to include the related action within the scope of the
Commission's award program if the particular facts and circumstances
warrant doing so. The flexibility that Section 36(a) provides seems
particularly well suited in these instances given the myriad and
varied competing interests that may be implicated.
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In addition, the Comparability Approach would provide that, after
determining that the two programs are comparable, the Commission would
deem a matter eligible for related-action status without regard to
which program has the more direct and relevant connection to the action
if the maximum award the Commission could have to pay in the related
action would not exceed $5 million.\35\ This condition would be
satisfied in any case where 30 percent of the monetary sanctions
ordered to be collected by the other agency is $5 million or less; if
so, then the action would be eligible to qualify as a related action
under the Commission's program. Similar to what the Commission
explained when in 2020 it adopted the $5 million award presumption in
Rule 21F-6(c), we believe that permitting an action to automatically
qualify as a related action under these circumstances would help save
whistleblowers time and effort, as well as Commission staff.
Whistleblowers who must file an award application with another wholly
unrelated program are likely to incur additional burdens in doing so,
including familiarizing themselves with any potentially applicable
rules. When the maximum award amount based on the monetary sanctions
paid out in the action would not exceed $5 million, we think it is
reasonable to allow the whistleblower to pursue any related-action
claim with the Commission (via a process with which the whistleblower
will be familiar given the whistleblower's previous filing of a
covered-action award). Additionally, because the Comparability Approach
would require Commission resources to assess award comparability in
each related-action claim that potentially implicates an alternative
award program, the $5 million threshold would help promote the timely
administration and efficiency of the award process.
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\35\ The Commission has chosen to base the $5 million threshold
on the maximum potential award that the Commission could be required
to pay, rather than rely on the monetary sanctions that have been
collected and are likely to be collected in the future. Our
experience demonstrates that we often do not have the same
visibility into the likelihood of collecting an award in another
agency's action that we do in the context of our own SEC actions,
particularly given that a determination would potentially be
required prior to the exhaustion of the other agency's collection
efforts. Therefore, for purposes of administrative efficiency, we
believe it is appropriate to use an objective reference point which
will be available at the time the Commission is determining whether
to grant a related-action award.
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We do not think this $5 million threshold would impose an undue
strain on the staff to process a related-action award to a final order,
nor do we think it will pose risks to the solvency of the IPF. In order
for a whistleblower to obtain the benefit of this new $5 million
threshold provision, however, the whistleblower will need to make an
irrevocable waiver of any claim to an award from the other program and
otherwise comply with the other procedural obligations that would be
imposed by amended Rule 21F-3(b)(3).
Below is a decision tree that outlines how the Commission would
apply the Comparability Approach described above:
Step 1. Determine whether another whistleblower program that might
apply to a potential related (non-SEC) action for which a claimant is
seeking an award.
<bullet> If yes, continue to step 2.
<bullet> If no, the matter would be treated as a potential related
action and the Commission would process the claimant's award
application against the general award criteria and eligibility
requirements of the whistleblower rules.
Step 2. If there is another program that applies to the potential
related action, determine whether it is a ``comparable award program.''
\36\
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\36\ As proposed, a ``comparable award program'' would be a
whistleblower award program administered by an authority or entity
other than the SEC: (i) That ``does not have an award range that
could operate in a particular action to yield an award for a
claimant that is meaningfully lower (when assessed against the
maximum and minimum potential awards that program would allow) than
the award range that the Commission's program could yield (i.e., 10
to 30 percent of collected monetary sanctions)''; (ii) that ``does
not have a cap that could operate in a particular action to yield an
award for a claimant that is meaningfully lower than the maximum
award the Commission could grant for the action (i.e., 30 percent of
collected monetary sanctions in the related action)''; and (iii) in
which the authority or entity administering the program does not
have discretion to ``deny an award notwithstanding the fact that a
whistleblower otherwise satisfies the established eligibility
requirements and award criteria.''
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<bullet> If the other award program is comparable, proceed to step
3.
<bullet> If the other program is not comparable, the matter would
be treated as a potential related action and the Commission would
process the
[[Page 9286]]
claimant's award application against the general award criteria and
eligibility requirements of the whistleblower rules.
Step 3. If the program is comparable, then determine whether
either: (1) The absolute maximum payout the Commission could make on
the potential related action is $5 million or less (i.e., 30 percent of
the monetary sanctions ordered is $5 million or less); or (2) the SEC's
award program has the more direct or relevant connection to the action
(relative to the other program) based on the facts and circumstances of
the action.
<bullet> If the answer to both (1) and (2) in step 3 is ``no,''
then the matter is not a related action.
<bullet> If the answer to (1) and/or (2) in step 3 is ``yes,'' the
matter would be treated as a potential related action and the
Commission would process the claimant's award application against the
general award criteria and eligibility requirements of the
whistleblower rules.
Beyond the proposed changes discussed above, Rule 21F-3 would be
revised to include a new paragraph (b)(3)(iv)(B) providing that the
Commission will make a determination about comparability on a case-by-
case basis. Further, a new paragraph (b)(3)(iv)(C) would be added to
Rule 21F-3 to state that if the Commission grants an award on a
related-action application that involves an alternative program that is
not comparable, the claimant must, within 60 calendar days of receiving
notice of the award, make an irrevocable waiver of any claim to an
award from the other program.
Relatedly, a new paragraph (b)(3)(iv)(D) would be added to Rule
21F-3 to afford the Commission robust authority to ensure that an
irrevocable waiver has been made. New paragraph (3)(b)(iv)(D) would
make clear that a claimant whose related-action award application is
subject to the provisions of Rule 21F-3 has the affirmative obligation
to demonstrate to the satisfaction of the Commission that the claimant
has complied with the terms and conditions of the proposed rule
regarding an irrevocable waiver. Proposed paragraph (b)(3)(iv)(D) would
also amend Rule 21F-3 to provide that a claimant must take all steps
necessary to authorize the administrators of the other award program to
confirm to staff in the Office of the Whistleblower (or in writing to
the claimant or the Commission) that an irrevocable waiver has been
made.
Further, a new paragraph (b)(3)(v) would be added to Rule 21F-3 to
require a claimant to promptly notify the Office of the Whistleblower
that they are seeking or have sought an award for a potential related
action from another award program.\37\ And a paragraph (b)(3)(vi) would
be added to advise claimants that the failure to comply with any of the
conditions or requirements of an amended Rule 21F-3(b)(3) ``may''
result in the Commission deeming the claimant ineligible for the
related action at issue.
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\37\ In addition to the changes discussed above, Rule 21F-
3(b)(3)(iii) would be amended so that the existing reference to a
``prompt, irrevocable waiver'' specifies that the waiver must be
made within 60 calendar days of the claimant receiving notice of the
Commission's award determination. This change would ensure that the
timing for an irrevocable waiver is consistent throughout Rule 21F-
3(b)(3). Further, certain stylistic and clarifying modifications
would be made to the existing three sentences of Rule 21F-
3(b)(3)(iii), and each of these revised sentences would be broken
out into new paragraphs (b)(3)(iii)(A) through (C). Finally, the
Commission is proposing to revise the first sentence of Rule 21F-
3(b)(3)(iii). In its current form, that sentence provides that the
Commission will not issue an award determination for a potential
related action if another program has already issued an award
determination to the claimant based on that action. The Commission
is proposing to replace that sentence with a new paragraph
(b)(3)(iii)(A) that would provide that the Commission's ability to
discontinue processing a claimant's related-action award application
is triggered only by the claimant's receipt of any payment from the
other program. This modification would strike a better balance in
terms of fairness to claimants because the receipt of a payment from
the other program is an action that a claimant has control over, but
a claimant often will have little control over the processing time
for award applications.
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Finally, the Commission contemplates that the Comparability
Approach would apply as follows in situations where two or more
whistleblowers who were not acting jointly contributed to the success
of a related action.\38\ If the Commission determined that the other
agency's award program was not comparable or that the maximum award
payable would not exceed $5 million, each whistleblower would be able
to determine separately whether to proceed under the Commission's
program or the other award program. Further, as is the case with all
related-action claims involving multiple, independent whistleblowers,
each claimant's application would be assessed separately to determine
whether the applicant qualifies for an award. And in determining the
appropriate award amount for any meritorious whistleblower who has
elected to proceed under our program, the award guidelines and
considerations specified in 17 CFR 240.21F-5 (Rule 21F-5) and Rule 21F-
6 would be used. In making its award assessment for any whistleblower
proceeding under the SEC's program, the Commission may consider the
relative contributions of any whistleblower who opted to proceed under
the alternative whistleblower program rather than the Commission's
program. That said, in no event would the total award paid out on a
related action to all the meritorious whistleblowers who proceed under
the Commission's program be less than 10 percent or greater than 30
percent of the total monetary sanctions collected in the related
action.\39\
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\38\ See generally Section 21F(a)(6) of the Exchange Act
(referring to ``2 or more individuals acting jointly'' to provide
information to the Commission).
\39\ Individuals who work jointly to provide the Commission with
information are treated as a single unit for assessing eligibility
requirements, applying the award criteria, and determining a
specific award amount. Consistent with this approach, such
individuals would have to determine jointly whether to proceed under
the Commission's program or the other program.
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2. Whistleblower's Choice Option
As an alternative to either maintaining Rule 21F-3(b)(3) in its
current form or modifying it as described above (Comparability
Approach), the Commission is requesting public comment on a third
approach, the Whistleblower's Choice Option. Under this option, the
Commission would process an application for a related-action award
without regard to whether a separate award program might also apply to
that action and irrespective of the whistleblower's decision to apply
for an award from the other award program. Under the Whistleblower's
Choice Option, the Commission would process the related-action award
application just as it does for related-action applications that do not
implicate separate award programs. And if both the Commission and the
other program grant an award, the Whistleblower's Choice Option would
allow the whistleblower to determine which award to accept. For
example, if a whistleblower received separate award offers from the
Commission and the Internal Revenue Service of the United States
(``IRS'') on the same underlying action, the whistleblower would be
able to consider both programs' award offers and select the higher
offer.
A revised rule embodying the Whistleblower's Choice Option would
not permit the claimant to receive payment on both awards; the
meritorious whistleblower would need to make a choice between the two
awards. To ensure that the claimant would not receive payment on the
same action from both programs, this proposed alternative would require
that a claimant identify any award program other than the SEC's to
which the claimant had applied. Before receiving any payment from the
Commission on a related-action award, the claimant
[[Page 9287]]
would be required to irrevocably waive any award (or claim to an award)
from the other program.
The critical feature of the Whistleblower's Choice Option is that--
unlike Rule 21F-3(b)(3) in its current form or as modified to
incorporate the Comparability Approach discussed above--the claimant,
not the Commission, would decide which program should pay any award for
a potential related action. The Commission would not account for the
existence of another potentially applicable award program in its
assessment of the claimant's award eligibility or award offer. Rather,
the Commission would consider the existence of the alternative award
program only at the payment stage, when it would be required to
determine that the whistleblower had irrevocably waived any and all
rights to an award from the other program before making the related-
action award payment.
A potential benefit of the Whistleblower's Choice Option is that
the Commission and the staff would no longer be required to determine
which award program has a more ``direct or relevant'' connection to the
related action. Such determination can entail difficult assessments,
the resolution of which can increase overall award processing time.
There are countervailing considerations that--at least
preliminarily--may militate in favor of the Comparability Approach.
First, under the Whistleblower's Choice Option, whistleblowers who
apply to both programs would get two separate opportunities to
demonstrate that they should receive an award.\40\ This could produce a
situation in which the Commission and another agency made conflicting
factual determinations after reviewing the same related action.
Separately, irrespective of whether another whistleblower award program
has a more direct or relevant connection to a matter upon which a
whistleblower is seeking a related-action award, a whistleblower could
attempt to use the Commission's Whistleblower Program to overcome or
avoid the failure to satisfy a significant eligibility requirement
imposed by the other program.
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\40\ The Commission has previously articulated a view that a
whistleblower should not have multiple bites at the adjudicatory
apple. See, e.g., 83 FR 34711; 76 FR 34305.
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Second, the Whistleblower's Choice Option could slow the overall
processing of award claims given the limited staff resources and the
likelihood that this approach would increase the staff's administrative
workload.\41\ Unlike either existing Rule 21F-3(b)(3) or the approach
contemplated by the Comparability Approach, the Whistleblower's Choice
Option could require the Commission to fully process every application
for a related-action award that also implicates a second award program.
Under Rule 21F-3(b)(3)'s existing framework, by contrast, the staff is
not required to work with officials at the authority or entity that
handled the underlying action to develop an administrative record
regarding the claimant's contributions to the other action. Rather,
under the existing framework, the Commission first analyzes the
relative relationship of each award program to the underlying action
and, if it determines that the Commission's award program lacks the
more direct or relevant connection to the action, it issues a final
order on this ground. This approach avoids the more time consuming and
challenging work often involved with understanding the whistleblower's
contribution to the potential related action and assessing whether the
various conditions for an award have been satisfied. But if the
Whistleblower's Choice Option were adopted to replace the current
framework, it would displace the threshold ``direct or relevant''
inquiry and the staff would generally process each related-action
application on the merits of the whistleblower's claim to an award.
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\41\ Processing claims for related-action awards generally takes
longer than the processing of award claims for SEC covered actions.
This is because Commission staff must often communicate with, and
obtain information from, staff from the other agency to determine
whether the claimant voluntarily provided new information that led
to the other agency's enforcement action in order to determine if
the claimant is eligible for a related-action award. Commission
staff must also obtain appropriate documentation from the other
agency to confirm collections in the related action and prepare an
accompanying declaration from a staff attorney memorializing for the
record the relevant information regarding the related action.
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To implement the Whistleblower's Choice Option, the current version
of Rule 21F-3(b)(3) would be repealed in its entirety and replaced by a
new Rule 21F-3(b)(3) that would specify the ``terms and conditions''
that would apply whenever at least one other award program potentially
applied to an action. Paragraph (b)(3)(i) of the revised rule would
provide that if the Commission determines that a claimant qualifies for
an award for the related action, any payment of that award by the
Commission would be conditioned on that claimant making an irrevocable
waiver of any award or potential award from the other program.
Paragraph (b)(3)(i) would also prohibit the Commission from considering
the existence of the alternative program or the amount of that
program's award (if one has already been issued) in its own
consideration of the claimant's right to a related-action award or its
determination about the proper amount of any award. Paragraph
(b)(3)(ii) would provide that the Commission will not make an award on
a related action (or pay on an award if one has already been issued),
if the claimant receives any payment from the other award program.
Paragraph (b)(3)(iii) would require that the claimant make an
irrevocable waiver of any award from the other program within 60
calendar days of the later of either a claimant learning of the
Commission's award amount or a claimant learning of the other program's
award offer. Further, new paragraph (b)(3)(iv) of Proposed Rule 21F-
3(b)(3) would provide that a claimant must comply with the irrevocable-
waiver requirement of paragraph (b)(3)(i) of the proposed revised
rule.\42\ A proposed paragraph (b)(3)(v) of a revised Rule 21F-3(b)(3)
would impose an affirmative obligation on a claimant seeking a related-
action award to promptly notify the Office of the Whistleblower if that
claimant was seeking an award on that same action from another agency.
A proposed paragraph (b)(3)(vi) would be added to advise claimants that
the failure to comply with any of the conditions or requirements of an
amended Rule 21F-3(b)(3) may result in the Commission deeming the
claimant ineligible for the related-action at issue.
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\42\ Placing this affirmative obligation on claimants would help
ensure that those subject to Rule 21F-3(b)(3) are adhering to the
terms and requirements of the proposed rule. The proposed rule
language to achieve this would be nearly identical to comparable
language in the Comparative Approach detailed in Part II(A), supra.
This rule text would provide that a claimant must take all steps
necessary to authorize the administrators of the other award program
to confirm to staff in the Office of the Whistleblower (or in
writing to the claimant or the Commission) that an irrevocable
waiver has been made.
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Finally, the Commission contemplates that the Whistleblower's
Choice Approach would apply as follows in situations where two or more
whistleblowers who were not acting jointly contributed to the success
of a related action and subsequently filed award applications with the
Commission.\43\ As is the case with all related-action claims involving
multiple, independent whistleblowers, each claimant's application will
be assessed independently of any other's to determine whether the
claimant
[[Page 9288]]
qualifies for an award. Assuming there are two or more meritorious
whistleblowers, the Commission would, consistent with its general
practice, include within its award determinations consideration of each
whistleblower's relative contributions to the success of the related
action (with the total award no lower than 10 percent and no greater
than 30 percent of monetary sanctions collected in the related action).
Each whistleblower would then be able to determine whether to accept
the Commission's award determination or instead waive the award
determination and take an award from the other program.\44\ Thus, for
example, if the Commission made an award of 10 percent to one
whistleblower and 20 percent to another, if the first whistleblower
waived the SEC's award and accepted an award from the other program,
the second would be free to accept the SEC's 20 percent award.\45\
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\43\ See generally Section 21F(a)(6) of the Exchange Act
(referring to ``2 or more individuals acting jointly'' to provide
information to the Commission).
\44\ Individuals who work jointly to provide the Commission with
information are treated as a single unit for assessing eligibility
requirements, applying the award criteria, and determining a
specific award amount. Consistent with this approach, under the
Whistleblower's Choice Option, such individuals would have to
determine jointly whether to accept an award from the Commission or
to waive the Commission's award determination in favor of the other
program's award determination.
\45\ A decision by one whistleblower to reject an SEC award
offer would not impact the award amount offered or paid to any other
whistleblowers. The award amounts offered to each whistleblower
would not depend on whether any of the whistleblowers opted to
decline the Commission's award offer. This means, among other
things, that the 30-percent presumption established by Rule 21F-6(c)
would not be applied to revise a whistleblower award upward as a
result of another whistleblower's determination to decline an award
from the Commission's program. Proceeding in this way is consistent
with the provision of the proposed rule that states the ``Commission
shall proceed to process the application without regard to the
existence of the alternative award program,'' which includes any
decisions the another whistleblower makes about taking an award
offered by that other program in lieu of an award offered by the
Commission's program.
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3. Other Alternatives
In addition to the Comparability Approach and the Whistleblower's
Choice Option, there are two other potential alternative approaches on
which the Commission seeks comment: The Offset Approach; and, the
Topping-Off Approach. Both would involve replacing the Multiple-
Recovery Rule. Under both of these two approaches, a whistleblower
would be permitted to receive a payment from both the Commission's
program and another entity's whistleblower program; the Commission
would not require whistleblowers to waive their claims to awards from
another program as a pre-condition to recovering under the Commission's
program.\46\ As discussed below, both raise potential administrative
issues that might counsel against their adoption.
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\46\ Similar to the Whistleblower's Choice Option, these
alternatives would begin with the Commission determining its award
percentage applicable to the related action, and would proceed if an
award from another program was lower than what would have been
awarded by the Commission on the related action had the other
program not existed.
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Under the Offset Approach, the Commission would determine the award
percentage it would otherwise pay on the related action but would
offset from the Commission's total award payment the dollar amount the
whistleblower receives for the related action from the other program's
award.\47\ Put differently, the Offset Approach would require the
Commission to make a related-action award even if another agency had
already paid an award on that same action, but the Commission could
reduce the amount it paid on its related-action award by the amount
that the other agency paid. The fact that the whistleblower might
receive an award from another program would have no bearing on the
Commission's actual award determination; it would be relevant only when
the Commission offset the award amount at the time of payment.\48\
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\47\ The effect on the IPF from the ``Offset Approach'' would be
difficult to assess with any confidence. Relative to the
Comparability Approach, the Offset Approach could potentially
increase the money paid from the IPF in some cases if a comparable
program were to produce a meaningfully smaller than expected award
and, as a result, an offset payment. However, in other instances,
the Offset Approach could reduce the burden on the IPF, because the
Commission would potentially be sharing responsibility with another
award program for that related action.
\48\ Pursuant to Exchange Act Section 21F(b), the Commission
shall pay an award to one or more meritorious whistleblowers of
``not less than 10 percent, in total, of what has been collected of
the monetary sanctions imposed in the [Commission's] action or
related actions[.]'' Under the Offset Approach, it is possible that
the Commission's portion of the award payment could place the
Commission in the position of making a related-action award that is
less than 10 percent of the total amount collected. Alternatively,
it could also result in a total reward to the claimant (when
combined with the payment from the other program) that exceeds 30
percent. As an illustration, if another program makes a 22 percent
award on a related action, and if the Commission determines to
provide an additional reward on top of the amount the other program
will pay, then the Commission would be presented with the following
dilemma: If the Commission's award is 8 percent or less, there would
appear to be a conflict with Section 21F's 10 percent statutory
minimum. But if the Commission makes an award greater than 8
percent, the total payout would exceed the 30 percent statutory cap.
For these reasons, the Commission has not designated the Offset
Approach as one of the principal approaches under consideration.
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Under the Topping-Off Approach, the current Rule 21F-3(b)(3)
framework would be retained but the Commission would be granted the
discretion to enhance or ``top off'' a covered-action award--that is,
increase the award amount on the Commission's own covered action (up to
a total award amount of 30 percent)--if the Commission concluded that
the other whistleblower program's award for the non-SEC action was
inadequate for any reason. A potential concern with this approach is
that, as a practical matter, the Commission's ability to enhance or
``top off'' a covered-action award to provide a whistleblower relief
from a deficient award issued by another program for a non-SEC action
would be limited in many instances. For example, when the covered-
action award already (i.e., prior to any enhancement to account for a
deficient award from the other program for the non-SEC action) is at or
near the statutory maximum 30 percent award authorized under Section
21F(b), the Commission would not have the ability to grant a
significant percentage enhancement. Similarly, if the monetary
sanctions collected in the Commission's action are relatively small
compared to the size of the related action's collected sanctions (e.g.,
a relatively small covered action involving $10 million in collected
sanctions versus a much larger non-SEC action involving $100 million in
collected sanctions), then the Commission's ability to provide relief
by topping off the covered action may be limited because of the sheer
size of the related-action relative to the Commission's action.
Finally, both of these alternatives raise the concern that they
would add significant delays to the Commission's ability to make timely
award determinations whenever an action implicates another award
program. This is because (unlike the Comparability Approach or the
Whistleblower's Choice Option) the Offset Approach and the Topping-Off
Approach would delay the Commission's ability to pay the final award
amount to a meritorious whistleblower until after the other entity's
award process has been completed.
Request for Comment
1. Do any of the approaches discussed above implicate additional
considerations that the Commission has not addressed in this proposing
release but that you believe should be factored into the Commission's
deliberations relating to potential amendments to Rule 21F-3(b)(3)? For
example, should the proposals identify the potential consequences that
might result if a
[[Page 9289]]
claimant fails to comply with the requirements of any amended rule?
2. The Commission outlines above how it contemplates dealing with
instances involving multiple whistleblowers under the Comparability
Approach and the Whistleblower's Choice Option. If the Comparability
Approach is adopted, is the Commission's proposed approach for
addressing awards in the context of related actions involving multiple
whistleblowers appropriate? Similarly, if the Whistleblower's Choice
Option is adopted, is the Commission's proposed approach for addressing
awards in the context of related actions involving multiple
whistleblowers appropriate? Please explain. Should the Commission
consider alternative approaches for dealing with related actions
involving multiple whistleblowers under the Comparability Approach and
Whistleblower's Choice Approach? Please explain and identify any
alternatives that you believe the Commission should consider.
3. Is the $5 million threshold proposed as part of the
Comparability Approach the appropriate figure? Should the threshold be
higher or lower? Please explain.
4. The initial set of whistleblower program rules adopted in May
2011 included a now-repealed version of Rule 21F-3(b)(3) that dealt
only with the potential that a claimant could receive awards for the
same related action from the Commission and the Commodity Futures
Trading Commission (``CFTC''), whose new whistleblower program, like
the SEC's, was authorized by the Dodd-Frank Act and includes a related-
action supplemental component. Under that original version of Rule 21F-
3(b)(3), the Commission stated that it would not pay an award on a
related action if the CFTC had already made an award on that action,
nor would the Commission allow the whistleblower to re-adjudicate any
factual issues decided against the whistleblower as part of the CFTC's
final order denying an award.\49\ Should the Commission reconsider this
original version of Rule 21F-3(b)(3) instead of adopting one of the
alternative options proposed in this release? If so, please explain why
and what revisions to the original version might be appropriate.\50\
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\49\ The 2011 adopting release explained that False Claims Act
qui-tam suits are legally excluded from a related-action recovery
under the Commission's whistleblower program. See 76 FR 34305. This
interpretation remains in effect and is not a subject of this
proposing release or otherwise opened for reconsideration as part of
this ongoing rulemaking process. Id.
\50\ See Letter from Kohn, Kohn & Colapinto, LLP, Comment
offered in connection with Proposing Release No. 34-83557 regarding
Related Actions and Proposed Rule 21F-3(b)(4) (Sept. 10, 2020)
(recommending that the Commission expand the 2011 version of Rule
21F-3(b)(3) that ``prohibit[ed] double awards under the [Commodity
Exchange Act] to include other similar whistleblower reward laws'').
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5. Proposed Rule 21F-3(b)(3)(iii)(A) directs that the Commission
shall not make a related-action award to a claimant (or any payment on
a related-action award if the Commission has already made an award
determination) if the claimant has already received any payment from
the other program for that potential related action. Rather than cut
off the potential for an award payment from the SEC in this situation,
should the Commission consider adopting in this limited situation some
form of an offset mechanism similar to the Offset Approach discussed
above? Please explain.
6. Instead of the current Rule 21F-3(b)(3) and the alternatives
discussed above (including the alternative referenced in the prior
question and the alternatives discussed in Part II(A)(3)), should the
Commission consider a different approach, such as: (i) Leaving the text
of Rule 21F-3(b)(3) unchanged; or (ii) adopting a hybrid approach that
would implement the Whistleblower's Choice option below a maximum
potential award threshold, and above that threshold retain the current
Rule 21F-3(b)(3) framework that considers which program has the more
direct or relevant connection to the action? Please identify the
alternative approach that you support, explain why you believe that
approach should be adopted, and explain how the specific approach you
support should work.
7. As described above, the Comparability Approach would apply in
any situation where another award program (were it to apply) has an
award range or an award cap that would yield an award ``meaningfully''
lower than the amount the Commission's program would likely offer (but
above a $5 million maximum award that might be paid by the Commission).
As discussed, the Comparability Approach would also apply where awards
under another award program are discretionary rather than mandatory. In
assessing whether an award from another award program (greater than the
$5 million threshold) would be ``meaningfully lower'' than the maximum
amount that might be awarded under the Commission's award program,
should the Commission establish a fixed dollar or percentage difference
as an alternative to the ``meaningfulness'' standard? If so, please
explain why a uniformly applied fixed dollar or percentage amount would
be better. If possible, please also identify the dollar or percentage
amount of the potential difference that the Commission should use to
determine that the other program's award is not meaningfully lower, and
please explain why that dollar or percentage amount is appropriate.
8. If the Comparability Approach is adopted, should the Commission
also incorporate eligibility and award conditions into the definition
of ``comparable whistleblower program''?\51\ For example, should
comparability include consideration of the absence of robust
confidentiality protections or anonymity provisions similar to those
under which the Commission's whistleblower program operates?\52\ Are
there other factors that the Commission should take into account to
determine if another whistleblower program is comparable to the
Commission's award program? With respect to the foregoing, if you
believe that additional factors should be added to assess a program's
comparability, please identify those factors and explain why they
should be considered in determining whether another award program is
comparable.
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\51\ See supra note 34 (explaining the Commission's rationale
for not including eligibility criteria and award conditions in the
assessment of the other award program's comparability).
\52\ See, e.g., Section 21F(h)(2) (heightened confidentiality
protections); Exchange Act Rule 21F-7, 17 CFR 240.21F-7
(confidentiality and anonymity protections).
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9. Both the Comparability Approach and the Whistleblower's Choice
Option would require that a claimant irrevocably waive and promptly
forgo an award from the other potentially relevant award program.
Should the Commission take additional steps to ensure that claimants
are put on notice of the potential consequences of falsely representing
that they have waived an award from the alternative program? If so,
please explain why this is uniquely important in this context and what
approach the Commission should take (such as, for example, requiring
claimants to explicitly acknowledge that providing false information to
the Commission could constitute a violation of Section 1001 of Title 18
of the United States Code (and any other applicable provisions))?
10. Are the time limits imposed by the Comparability Approach and
Whistleblower's Choice Option appropriate? Should these time periods be
longer or shorter and, if so, what would be appropriate time periods?
Please explain.
[[Page 9290]]
B. Proposed Amendment To Exchange Act Rule 21F-6 Regarding Size of
Award
Rule 21F-6 identifies the criteria that the Commission may consider
when determining the amount of an award.\53\ The 2020 Amendments added
language to Rule 21F-6 clarifying that it was within the Commission's
discretion to consider the dollar amount of an award when making an
award determination.\54\ Before this amendment, the rule (with one
exception, see infra footnote 58 and accompanying text) referred to the
Commission making award determinations by considering percentage
adjustments to increase and decrease the award amount, and neither
unambiguously provided that the Commission could consider dollar
amounts nor prohibited it from doing so when assessing the various
award factors.\55\
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\53\ In deciding whether to increase the amount of an award,
Rule 21F-6(a) identifies the following relevant considerations: (1)
``The significance of the information provided by a whistleblower to
the success of the Commission action or related action''; (2) ``the
degree of assistance provided by the whistleblower and any legal
representative of the whistleblower in the Commission action or
related action''; and (3) the ``programmatic interest in deterring
violations of the securities laws by making awards to whistleblowers
who provide information that leads to the successful enforcement''
of the securities laws. And in deciding whether to decrease the
amount of an award, Rule 21F-6(b) permits the Commission to
consider: (1) The ``culpability or involvement of the whistleblower
in matters associated'' with the covered action or related action;
(2) ``whether the whistleblower unreasonably delayed in reporting
the suspected securities violations''; and (3) ``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.''
\54\ See Rule 21F-6 (``In exercising its discretion to determine
the appropriate award, the Commission may consider the following
factors (and only the following factors) in relation to the facts
and circumstances of each case in setting the dollar or percentage
amount of the award.''). The 2020 Amendments explicitly acknowledge
the Commission's discretion to consider the dollar amount of a
potential award when applying the award factors specified in
paragraphs (a) and (b) of Rule 21F-6. See, e.g., Adopting Release,
85 FR 70909-10 (``The Commission has had and continues to have broad
discretion in applying the Award Factors and setting the Award
Amount, including the discretion to consider and apply the Award
Factors in percentage terms, dollar terms or some combination
thereof.''); id. at n.102 (``When applying the award factors
specified in Rule 21F-6 and determining the award dollar and
percentage amounts set forth in the preliminary determination, the
award factors may be considered by the SEC staff and the Commission
in dollar terms, percentage terms or some combination thereof.'').
\55\ The Commission has previously explained that the statutory
framework that Section 21F establishes can be read to allow the
Commission to consider the dollar amount of a potential award.
Proposing Release, 83 FR 34714 n.105. Indeed, the language in
Section 21F refers to the ``amount of the award,'' which affords the
Commission discretion to set the awards based on a consideration of
the appropriate dollar amount that should be paid (provided that
this dollar amount is between 10 percent and 30 percent of the
collected monetary sanctions). Id.
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The Commission proposes a targeted revision to further clarify how
it may use its discretion to consider the dollar amount of a potential
award when applying the award factors specified in paragraphs (a) and
(b) of Rule 21F-6. Specifically, the Commission is proposing a new
paragraph (d) for Rule 21F-6 that would do two things. First, it would
provide that the Commission ``shall not'' use the dollar amount of a
potential award when applying the factors specified in paragraphs (a)
and (b), or in any other way, to lower a potential award.\56\ Second,
new paragraph (d) would provide that the Commission may consider the
dollar amount of a potential award for the limited purpose of
increasing the award amount.\57\ Several factors counsel in favor of
this proposal.
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\56\ If Rule 21F-3(b)(3) were amended to adopt the Offset
Approach or Topping-Off Approach discussed above in Part II(A)(3),
the Commission, when applying either of those approaches, may need
to consider the dollar amount of awards, and thus the Commission
anticipates that any amended Rule 21F-3(b)(3) adopting either of
those approaches might require a corresponding amendment to Rule
21F-6(d).
\57\ The Commission is also proposing to modify Rule 21F-10(e)
and Rule 21F-11(e) to make clear that, in applying the award factors
specified in Rule 21F-6 and determining the award dollar and
percentage amounts set forth in the preliminary determination, the
award factors may be considered by the SEC staff and the Commission
in dollar terms ``subject to the limitations imposed by Rule 21F-
6(d).'' The Commission is also proposing to revise the text of Rule
21F-11(a) to improve its readability and clarity (with no
substantive modification of the provision).
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First, the SEC's ongoing experience with whistleblower awards has
demonstrated that the discretionary authority to decrease awards based
on potential dollar size is unnecessary. In the history of the
Commission's whistleblower program, to the extent that the Commission
has considered the dollar amount of an award as part of the award
analysis under Rule 21F-6, the Commission has generally done so to
increase the amount of an award in connection with applying the ``law
enforcement interest'' factor in Rule 21F-6(a)(3).\58\ By contrast, the
Commission has not considered the dollar amount to lower any awards
since the rule was amended.\59\
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\58\ As the Commission explained in the 2020 Adopting Release,
``the Commission's long-standing interpretation of Rule 21F6(a)(3)--
law enforcement interest--already specifically references the
Commission's discretion to consider the monetary sanctions and the
potential Award Amount when assessing that factor[.]'' See 85 FR
70910. See also 83 FR 34712; 76 FR 34331, 34366. Rule 21F-6(a)(3)
allows the Commission to consider the degree to which a potential
award will ``enhance[ ] the Commission's ability to enforce the
federal securities laws and protect[ ] investors'' and ``encourage[
] the submission of high quality information from whistleblowers by
appropriately rewarding'' them. Rule 21F-6(a)(3)(i)-(ii).
\59\ And since that time, the Commission has granted some of the
highest awards in the program's history, including two awards at or
above $110 million, without any suggestion that the award should be,
or was being, lowered as a result of its dollar size. See Press
Release, 2021-177, SEC Surpasses $1 Billion in Awards to
Whistleblowers with Two Awards Totaling $114 Million (Sept. 15,
2021), available at <a href="https://www.sec.gov/news/press-release/2021-177">https://www.sec.gov/news/press-release/2021-177</a>
(``[W]histleblower's $110 million award consists of an approximately
$40 million award in connection with an SEC case and an
approximately $70 million award arising out of related actions by
another agency''); Press Release, SEC Issues Record $114 Million
Whistleblower Award (Oct. 22, 2020), available at <a href="https://www.sec.gov/news/press-release/2020-266">https://www.sec.gov/news/press-release/2020-266</a> (``The $114 million award
consists of an approximately $52 million award in connection with
the SEC case and an approximately $62 million award arising out of
the related actions by another agency.'').
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Second, it has been the Commission's experience that large awards
in particular generate public interest and in so doing increases the
instances of whistleblowers coming forward to report securities-law
violations.\60\ In this way, large awards directly serve the purpose of
the whistleblower program (and by extension the interests of the
investing public) by incentivizing whistleblowers to report violations
to the Commission.\61\
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\60\ The Commission's whistleblower program was enacted to
incentivize individuals to submit tips to the Commission with the
ultimate goal of more effectively and efficiently detecting,
preventing, and addressing securities law violations. This goal is
evident in the title of the statutory provision. See Securities
Whistleblower Incentives and Protection, 15 U.S.C. 78u-6 (emphasis
added). Moreover, Section 21F(c)(1)(B)(i)(III) of the Exchange Act
requires the Commission to take ``the 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.'' See also Rule 21F-6(a)(3) (restating the
``programmatic interest'' award factor).
\61\ See Whistleblower Awards Process and Statistics, available
at <a href="https://www.sec.gov/page/whistleblower-100">https://www.sec.gov/page/whistleblower-100</a> million.
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Third, the Commission is concerned that discretionary authority to
consider the dollar amount of potential awards clarified in the 2020
Amendments could create uncertainty about, and thereby decrease
confidence in, the award process itself. The Commission's internal
award-review process is thorough and robust. For example, award
recommendations to the Commission are based on the collective views of
the members of the Commission's Office of the Whistleblower and Claims
Review Staff (which has historically been composed of senior career
staff members in the Division of Enforcement), and those
recommendations are separately reviewed by Enforcement's Office of
Chief Counsel and the Commission's
[[Page 9291]]
Office of the General Counsel before they are submitted to the
Commission. But in order to ensure whistleblowers feel safe providing
information to the Commission, and because the Commission must comply
with statutory confidentiality protections to avoid disclosing the
identity of whistleblowers, it does not discuss the details of how that
award-review process produces final award determinations in individual
cases.\62\ Indeed, publicly available award determination orders often
affirm that the Commission considered the Rule 21F-6 criteria without
flagging specific factual considerations or award factors on which the
Commission relied, or revealing the actual percentage awarded (instead,
the award is generally presented as a dollar figure).\63\
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\62\ See 21F(h)(2) of the Exchange Act, 15 U.S.C. 78u-6(h)(2)
(imposing heightened confidentiality requirements in order to
protect the identity of whistleblowers). Id. The SEC is required to
keep a whistleblower's identity confidential unless and until it is
required to be disclosed to a defendant in a public proceeding or
unless the SEC deems it necessary to share it with certain other
authorities (in which case those authorities must keep it
confidential). Id.
\63\ The Commission's long-standing general practice in public
whistleblower award orders is to describe awards in actual dollar
amount, rather than percentages (which are generally redacted).
Adopting Release, 85 FR 70910. This practice has been followed for
the common-sense reason that actual dollar figures--not abstract
percentages--are most likely to advance the whistleblower award
program's goal of incentivizing potential whistleblowers. Id.
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Because public information regarding how the Commission applies
award factors in practice is limited, the Commission perceives a risk
that merely maintaining the authority to lower awards based on the
dollar amount of the award may create the misimpression that the
Commission is regularly exercising such authority--and this could in
turn potentially deter individuals from reporting misconduct.\64\ The
proposed amendment should foreclose that risk by expressly stating that
the Commission may not consider the dollar amount of an award for the
purpose of potentially lowering the award amount.\65\
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\64\ In reality, both the size and frequency of awards have
increased since the 2020 Amendments. See supra note 59 and
accompanying text (noting that, since the 2020 Amendments, the
Commission has granted some of the highest awards in the program's
history, including two awards at or above $110 million, without any
suggestion that the award should be, or was being, lowered as a
result of its dollar size). In 2020, the program awarded
approximately $175 million to 39 individuals--at that time both the
highest dollar amount and the highest number of individuals awarded
in a given fiscal year in the program's history--triple the number
of individuals awarded in 2018, the next-highest fiscal year, when
the Commission awarded 13 individuals. See SEC 2020 Report on
Whistleblower Program at 2, available at <a href="https://www.sec.gov/files/2020AnnualReport_0.pdf">https://www.sec.gov/files/2020AnnualReport_0.pdf</a>. Likewise, in 2020, the Commission received a
31 percent increase in tips from 2018, the second-highest tip year.
Id. This trend continued--and accelerated--through 2021. Indeed, the
Commission made more whistleblower awards in 2021 than in all prior
years combined, awarding approximately $564 million to 108
individuals. See SEC 2021 Report on Whistleblower Program at 1, 10,
available at <a href="https://www.sec.gov/files/owb-2021-annual-report.pdf">https://www.sec.gov/files/owb-2021-annual-report.pdf</a>.
\65\ The proposed amendment would permit the Commission to
increase the dollar amount of an award when considering any of the
positive award factors in Rule 21F-6(a). This authority does not
impact, and in fact is separate and distinct from, the maximum-award
presumption that Rule 21F-6(c) establishes. See Adopting Release, 85
FR 70899 (``[W]ith a focus on increased transparency, efficiency and
clarity, we are adding a specific provision to Rule 21F-6 that will
create a presumption that, when (1) the statutory maximum authorized
Award Amount is $5 million or less and (2) the negative Award
Factors are not present, the Award Amount will be set at the
statutory maximum, subject to the Commission's discretion to apply
certain exclusions.'').
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Request for Comment
11. Are there additional considerations that the Commission should
assess in deciding whether to adopt any changes to Rule 21F-6,
including proposed Rule 21F-6(d)?
12. Are there other or different revisions to Rule 21F-6 that the
Commission should consider to clarify that the Commission will not
lower an award based on the potential dollar amount of the award? For
example, should the Commission consider removing the reference to
``dollar . . . amount of the award'' entirely from the introductory
paragraph of Rule 21F-6? Please explain why this approach or any other
alternative approach should be adopted and explain how the specific
approach recommended would work.
13. Instead of completely eliminating the Commission's ability to
consider the dollar amount of an award when assessing whether to lower
a potential award, should the Commission retain this authority for a
subset of awards (e.g., for related-action awards, given that they are
an ancillary component of the program, or for awards where the
whistleblower engaged in culpable conduct or obstructed the
Commission's process in some fashion)? Please identify the approach
that you would follow and explain the basis for your recommendation if
it differs from the approach the Commission has proposed.
C. Proposed Technical Amendments To Rule 21F-4(c) and Rule 21F-8(e)
<SUP>66</SUP>
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\66\ The Commission is not reopening any aspect of Rule 21F-4(c)
or Rule 21F-8(c) for public comment on other potential revisions,
including potential substantive revisions, beyond the technical
revisions proposed herein.
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Rule 21F-4(c) was adopted by the Commission in 2011 as part of the
original set of whistleblower program rules to list the three ways a
whistleblower's information can have ``led to'' the success of an
action.\67\ There is a scrivener's error at the end of Rule 21F-4(c)(2)
that the Commission is proposing to correct to enhance the readability
and grammatical consistency of Rule 21F-4(c). Specifically, the
Commission would insert a semicolon and the word ``or'' at the end of
Rule 21F-4(c)(2) to replace the period that is currently there.
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\67\ See 76 FR 34365. See also id. at 34357 n.438.
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Rule 21F-8(e) was adopted by the Commission in the 2020
whistleblower rule amendments to authorize a permanent bar against any
individual who submits three or more award applications that are
frivolous or lack a colorable connection between the tip and the
action.\68\ In this context, paragraph (e)(3) provides a whistleblower
with notice and an opportunity to withdraw up to three such award
applications, which, if withdrawn, would not be considered by the
Commission in determining whether to exercise its authority to impose
such a permanent bar.\69\ Moreover, paragraph (e)(4) provides a
whistleblower with notice and an opportunity to withdraw all such
frivolous or noncolorable award applications that were filed before the
effective date of the new permanent bar provisions.\70\
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\68\ See Adopting Release, 85 FR 70920-22.
\69\ See id. at 70920.
\70\ See id. at 70921-22.
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As adopted in 2020, the second sentence of Rule 21F-8(e)(4)(ii)
states that the procedures in Rule 21F-8(e)(3) shall apply to any award
application that is pending as of the effective date of the rule and
that is determined to be a frivolous or noncolorable application. The
sentence was in error, as paragraphs (e)(3)(i) through (iii) affords
claimants notice and an opportunity to withdraw only three
applications, whereas paragraph (e)(4) by its terms applies ``to all
award applications pending as of the effective date of paragraph (e) of
this section'' and affords claimants notice and an opportunity to
withdraw all such pending award applications.\71\ Given this
scrivener's error, the Commission is proposing a technical amendment to
delete the second sentence of Rule 21F-8(e)(4)(ii).
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\71\ The discussion in the adopting release for the 2020
Amendments is silent about this sentence, further indicating that it
was a scrivener's error. See id.
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[[Page 9292]]
III. General Request for Public Comment
We request and encourage any interested person to submit comments
on any aspect of the proposed rule amendments, interpretations, or
other items specified above, including the economic analysis contained
below (especially if accompanied by supporting data and analysis of the
issues addressed therein).
Finally, other than the items specifically identified in this
release, persons wishing to comment are expressly advised that the
Commission is not proposing any other changes to the whistleblower
program rules (i.e., 17 CFR 240.21F-1 through 240.21F-18 (Exchange Act
Rules 21F-1 through 21F-18)), nor is the Commission otherwise reopening
any of those rules for comment.\72\
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\72\ See Proposing Release, 83 FR 34734.
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IV. Economic Analysis
The Commission is sensitive to the economic consequences of its
rules, including the benefits, costs, and effects on efficiency,
competition, and capital formation. Section 23(a)(2) \73\ of the
Exchange Act 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 \74\ 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.
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\73\ 15 U.S.C. 78w(a)(2).
\74\ 15 U.S.C. 78c(f).
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This economic analysis concerns the proposed amendments to Exchange
Act Rule 21F-3 and Rule 21F-6. As discussed above, the proposed
amendments to Rule 21F-3(b)(3) would allow awards for related actions
if an alternative whistleblower program has an award range or award cap
that would restrict the maximum potential award from that other program
to an amount that is meaningfully lower than the maximum potential
award that the Commission could make. The proposed amendment to Rule
21F-6 would eliminate the Commission's discretion to consider the
dollar amounts to reduce an award. Although the impact of the proposed
amendments is expected to be small, to the extent that there is an
impact, the amendments could increase the size of some whistleblower
awards and therefore the incentives for whistleblowers to submit tips.
The benefits and costs discussed below are difficult to quantify.
For example, we do not have a way of estimating quantitatively the
extent to which the proposed rules could affect our enforcement program
by altering whistleblowing incentives. Similarly, we are unable to
quantify any costs (or benefit) to the whistleblower program's IPF
associated with the Comparability Approach or the three other
approaches discussed above for amending Rule 21F-(b)(3). Therefore, the
discussion of economic effects of the proposed amendments is
qualitative in nature.
A. Economic Baseline
To examine the potential economic effects of the amendments, we
employ as a baseline the set of rules that implement the SEC's
whistleblower program as amended in September 2020.\75\ Over the past
10 years, the whistleblower program has been an important component of
the Commission's efforts to detect wrongdoing and protect investors in
the marketplace, particularly where fraud is concealed or difficult to
find. The program has received a high number of submissions from
whistleblowers and it has also produced substantial awards.\76\ Both
the number of submissions and the number and dollar amount of awards
per year have increased considerably since the program was
initiated.\77\
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\75\ Earlier this year, the Commission issued a statement
identifying procedures that could be used by whistleblower award
program during an Interim Policy-Review Period. Release No. 34-81207
(Aug. 5, 2021), available at <a href="https://www.sec.gov/rules/policy/2021/34-92565.pdf">https://www.sec.gov/rules/policy/2021/34-92565.pdf</a>. These procedures are considered in the economic
baseline.
\76\ In fiscal year (FY) 2021, the Commission awarded
approximately $564 million to 108 individuals--both the largest
dollar amount and the largest number of individuals awarded in a
single fiscal year. The program was also very active in FY 2020,
awarding approximately $175 million to 39 individuals. See supra
note 59.
\77\ See SEC 2020 Report on Whistleblower Program, at 9-16; U.S.
Sec. & Exch. Comm'n, Div. of Enf. 2020 Ann. Rep., pp. 9-16 (November
2, 2020), available at <a href="https://www.sec.gov/files/enforcement-annual-report-2020.pdf">https://www.sec.gov/files/enforcement-annual-report-2020.pdf</a>.
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Whistleblower programs, and the SEC's whistleblower program in
particular, have been studied by economists who report findings
consistent with award programs being effective at contributing to the
discovery of violations. For example, a recent publication reports
that, among other benefits, ``[w]histleblower involvement [in the
enforcement process] is associated with higher monetary penalties for
targeted firms and employees.'' \78\ In addition, current working
papers report that the SEC's whistleblower program deters aggressive
(i.e., potentially misleading) financial reporting \79\ and insider
trading.\80\
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\78\ Andrew C. Call, et al., Whistleblowers and Outcomes of
Financial Misrepresentation Enforcement Actions, 56 J. Acct. Res.
123, 126 (2018). See also Philip Berger, et al., Did the Dodd-Frank
Whistleblower Provision Deter Accounting Fraud? (Jan. 2021)
(unpublished manuscript) available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3059231">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3059231</a> (``[F]ind[ing] that exposure to Dodd-
Frank reduces the likelihood of accounting fraud of treatment firms
by 17% relative to control firms.''); Alexander Dyck, et al., Who
Blows the Whistle on Corporate Fraud?, 65 J. Fin. 2213, 2215 (2010)
(``[A] strong monetary incentive to blow the whistle does motivate
people with information to come forward.'').
\79\ See Christine Weidman & Chummei Zhu, Do the SEC
Whistleblower Provisions of Dodd Frank Deter Aggressive Financial
Reporting (Feb. 24, 2020) (unpublished manuscript), available at
<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3105521">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3105521</a>. See
also Jaron H. White, The Deterrent Effect of Employee Whistleblowing
on Firms' Financial Misreporting and Tax Aggressiveness, 92 Acct.
Rev., 247-80 (2017).
\80\ See Jacob Raleigh, The Deterrent Effect of Whistleblowing
on Insider Trading (Sept. 29, 2021) (unpublished manuscript),
available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3672026">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3672026</a>.
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B. Proposed Rules
1. Proposed Rule 21F-3(b)(3)
The proposed rule amendments may affect SEC whistleblower awards in
cases where there is a potential related action that could be covered
by another whistleblower program. Turning first to the Comparability
Approach, it would authorize the Commission to make awards in
particular situations where, under the Multiple-Recovery Rule, another
award program would otherwise apply if that program has the more direct
or relevant relationship to the underlying (non-Commission) related
action.\81\ The Comparability Approach would do this by authorizing the
Commission to make an award irrespective of the related action's
relative relationship to the two award programs if the other award
program is discretionary, or structured to provide meaningfully smaller
awards than the maximum potential award that could be granted by the
SEC's program, or if the maximum total award amount that the Commission
could pay is less than or equal to $5 million. The Whistleblower's
Choice Option, by
[[Page 9293]]
contrast, would allow the Commission to make an award irrespective of
the existence of another program and allow the whistleblower to decide
whether to accept the Commission's award or the other program's award.
While the two approaches are structured differently, the end result is
that both the Comparability Approach and the Whistleblower's Choice
Option may increase the total dollar award amount for a whistleblower
compared to the baseline. Thus both options could increase the
incentives for whistleblowers.\82\
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\81\ It would be difficult to predict with any degree of
certainty how often the Comparability Approach would be relevant,
particularly as whistleblower programs change, and new whistleblower
programs are implemented. That said, as discussed above, the
Commission has seen an increase in the number of award matters that
would potentially implicate the Comparability Approach.
\82\ See infra notes 84 and 85.
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The Whistleblower's Choice Option might have a slightly different
incentive effect, since a comparison would be made between realizable
award amounts rather than analysis of award structures.\83\ To the
extent that a whistleblower prefers to exercise discretion over the
selection of awards for the same related action, the whistleblower may
prefer the Whistleblower's Choice Option because the whistleblower
would have an opportunity to make a decision in every instance where
another award program might apply. In contrast, the Comparability
Approach would not offer the whistleblower the opportunity to exercise
discretion.
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\83\ In theory, the Whistleblower's Choice Option could result
in a larger award than the Comparability Approach. For example, a
comparable program, such as the CFTC's program, might potentially
determine an award amount at 20 percent. If, in that case, the
Commission would have exercised its discretion to determine an award
at 30 percent for the related action, the whistleblower would
receive a larger amount under the Whistleblower's Choice Option than
under the Comparability Approach.
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To the extent that these amendments increase the willingness of
some individuals to come forward with information about potential
securities law violations, this could, in turn, increase Commission
enforcement activity and deter wrongdoing. The effects of the rule
changes are expected to be small, due to the limited circumstances
under which they would apply, and because there are many factors,
including non-pecuniary incentives, that motivate whistleblowers.\84\
Although the effects may be small, economic research suggests that
changes in whistleblowing incentives may have an effect on the
frequency of whistleblowing activity.\85\
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\84\ The complex mix of pecuniary and non-pecuniary elements
that motivate whistleblowers were described in the economic analysis
for the 2020 Adopting Release for Rule 21F-3(b)(3), section VI.B.2,
see Adopting Release, 85 FR 70937.
\85\ See Andrew C. Call, et al., Rank and File Employees and the
Discovery of Misreporting: The Role of Stock Options, 62 J. Acct. &
Econ. 277, 297-99 (2016). See also Jonas Heese & Gerardo Perez-
Cavazos, The Effect of Retaliation Costs on Employee Whistleblowing,
71 J. Acct. & Econ. 101385 (2021).
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Because these amendments may increase the amounts paid to
whistleblowers under certain circumstances, there may be costs
associated with the proposed changes. One possibility is that the IPF
would be depleted.\86\ For example, assume the DOJ collected $1.5
billion on a related action. If there were a meritorious whistleblower
involved who was entitled to an award, then even a mid-range 20 percent
award would require the Commission to pay the whistleblower $300
million, an amount that could well exhaust the IPF.\87\ An award that
exhausted the IPF could produce additional effects that would depend on
the size of the shortfall and the SEC whistleblower awards that would
otherwise be issued and paid during the shortfall period.\88\
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\86\ 17 CFR 240.21F-14(d) (Exchange Act Section 21F-14(d)),
which describes the procedures applicable to the payment of awards,
indicates that if there are insufficient amounts available in the
IPF to pay the entire amount of an award within a reasonable period
of time, then the balance of the payment shall be paid when amounts
become available. These procedures specify the relative priority of
competing claims.
\87\ See generally Exchange Act Section 21F(g)(3)(A). At the end
of FY 2021, the IPF's balance was $144,442,134. To date, the largest
amount the award fund has ever had is approximately $453 million.
See 2013 Annual Report to Congress on the Dodd-Frank Whistleblower
Program available at <a href="https://www.sec.gov/files/annual-report-2013.pdf">https://www.sec.gov/files/annual-report-2013.pdf</a>.
\88\ See supra note 3. See also Exchange Act Section
21F(c)(1)(B)(ii).
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In addition, we expect that these proposals would increase the
administrative costs for the SEC's whistleblower program. For example,
the Comparability Approach would require the Commission to compare
whistleblower programs based on the expected award amounts from those
programs. However, we believe these costs would be small relative to
the baseline, and, to the extent that the program structures are
stable, the comparisons may not need to be repeated for each case. In
contrast, the Whistleblower's Choice Option could be expected to
increase the administrative costs relative to the baseline more than
the Comparability Approach because it would require the Commission to
determine whether an award should be granted in each case where there
is a related action and a separate whistleblower program.\89\ As
described above, the increase in administrative costs is expected to be
greater for the Whistleblower's Choice Option than for the
Comparability Approach.
---------------------------------------------------------------------------
\89\ The award presumption established by Rule 21F-6(c) could
help limit the overall administrative costs, however. See Adopting
Release, 85 FR 70911 (discussing potential ``gains in efficiency
from streamlining the award determination process'' when the $5
million award presumption would apply during the award-calculation
phase).
---------------------------------------------------------------------------
2. Proposed Rule 21F-6
The proposed rule change would eliminate the Commission's
discretionary authority to consider dollar amounts in reducing awards
while retaining the Commissions' discretionary authority to consider
dollar amounts to increase awards. The 2020 amendments that include
express language to authorize the Commission to consider, in its
discretion, the dollar amount of an award when making an award
determination may have increased whistleblowers' uncertainty relating
to the program and thus potentially reduced their willingness to report
potential misconduct. To the extent that the 2020 amendments have
created uncertainty that may have diminished a whistleblower's
willingness to come forward, eliminating this discretionary authority
would reduce uncertainty and thus potentially encourage more
whistleblowing. However, we cannot determine with any reasonable degree
of certainty if the proposed revisions to Rule 21F-6 would affect a
whistleblower's willingness to report a potential securities law
violation. To the extent that the Commission would have exercised the
discretion to lower award amounts, the amendments to Rule 21F-6 would
increase program costs by any such amounts.\90\
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\90\ Similar to the proposed amendments to Rule 21F-3(b)(3), to
the extent that program costs increase as a result of these proposed
amendments, there would be an increase in the possibility that the
IPF would be depleted. As described above, an award that exhausted
the IPF could produce additional effects that would depend on the
size of the shortfall and the SEC whistleblower awards that would
otherwise be issued and paid during the shortfall period. See supra
notes 86 through 88 and accompanying text.
---------------------------------------------------------------------------
C. Additional Alternatives
As discussed above, the Offset Approach and the Topping-Off
Approach are alternatives that may also increase whistleblower award
incentives. For example, under certain circumstances, the Offset
Approach may produce award amounts in related actions that are
comparable, if not identical, to the awards produced under the
Comparability Approach and the Whistleblower's Choice Approach. In
contrast, the Topping-Off Approach may
[[Page 9294]]
result in smaller changes in the award amounts.\91\
---------------------------------------------------------------------------
\91\ As described above, the Topping-Off Approach would not
allow the Commission to provide an increase to the covered-action in
those instances where the Commission grants an award at the 30
percent statutory cap, which occurs in a substantial portion of
cases.
---------------------------------------------------------------------------
As also discussed above, both of these approaches would likely
increase the Commission's award-processing time, because the
Commission's final award-amount determinations would be dependent on
the completion resolution of the award process by the entity or
authority administering the other award program. Additional delays may
adversely affect whistleblower incentives. As a result, despite the
generally positive expected impact on award amounts, the net impact on
whistleblower incentives from the Offset Approach and the Topping-Off
Approach is ambiguous.
D. Effects of the Proposed Rules on Efficiency, Competition, and
Capital Formation
As discussed earlier, the Commission is sensitive to the economic
consequences of its rules, including the effects on efficiency,
competition, and capital formation. The Commission believes that the
proposed amendments would make incremental changes to its whistleblower
program. Thus, the Commission does not anticipate the effects on
efficiency, competition, and capital formation to be significant.
The proposed rules could have a positive indirect impact on
investment efficiency and capital formation by increasing the
incentives of potential whistleblowers to provide information on
possible violations. To the extent that increased whistleblowing
incentives stemming from the proposed rules result in more timely
reporting of useful information on possible violations or the reporting
of higher quality information on possible violations, the Commission's
enforcement activities could become more effective. More effective
enforcement could lead to earlier detection of violations and increased
deterrence of potential future violations, which could improve price
efficiency and assist in a more efficient allocation of investment
funds. Securities frauds, for example, can cause inefficiencies in the
economy by diverting investment funds from legitimate, productive
uses.\92\
---------------------------------------------------------------------------
\92\ See Adopting Release, 76 FR 34362.
---------------------------------------------------------------------------
Request for Comment
The Commission seeks commenters' views and suggestions on all
aspects of its economic analysis of the proposed amendments. In
particular, the Commission asks commenters to consider the following
questions:
14. Are there costs and benefits associated with the proposed
amendments that the Commission has not identified? If so, please
identify them and, if possible, offer ways of estimating these costs
and benefits.
15. Are there effects on efficiency, competition, and capital
formation stemming from the proposed amendments that the Commission has
not identified? If so, please identify them and explain how the
identified effects result from one or more amendments.
V. Small Business Regulatory Enforcement Fairness Act
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\93\ the Commission solicits data to determine
whether the proposed rule amendments constitute a ``major'' rule. Under
SBREFA, a rule is considered ``major'' where, if adopted, it results or
is likely to result in:
---------------------------------------------------------------------------
\93\ Public Law 104-121, tit. II, 110 Stat 857 (1996).
---------------------------------------------------------------------------
<bullet> An annual effect on the economy of $100 million or more
(either in the form of an increase or a decrease);
<bullet> A major increase in costs or prices for consumers or
individual industries; or
<bullet> Significant adverse effects on competition, investment, or
innovation.
Commenters should provide empirical data on: (a) The potential
annual effect on the economy; (b) any increase in costs or prices for
consumers or individual industries; and (c) any potential effect on
competition, investment or innovation.
VI. Regulatory Flexibility Act Certification
Section 603(a) of the Regulatory Flexibility Act \94\ requires the
Commission to undertake an initial regulatory flexibility analysis of
the proposed rules unless the Commission certifies that the proposed
rules, if adopted, would not have a significant economic impact on a
substantial number of small entities.\95\
---------------------------------------------------------------------------
\94\ 5 U.S.C. 603(a).
\95\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------
Small entity is defined in Section 601(6) of Title 5 of the U.S.
Code to mean ``small business,'' ``small organization,'' and ``small
governmental jurisdiction'' (see Section 601(3) through (5)). The
definition of ``small entity'' does not include individuals. The
proposed rules apply only to an individual, or individuals acting
jointly, who provide information to the Commission relating to the
violation of the securities laws. Companies and other entities are not
eligible to participate in the whistleblower award program as
whistleblowers. Consequently, the persons that would be subject to the
proposed rules are not ``small entities'' for purposes of the
Regulatory Flexibility Act.
For the reasons stated above, the Commission certifies, pursuant to
605(b) of Title 5 of the U.S. Code that the proposed rules if adopted
would not have a significant economic impact on a substantial number of
small entities.
Solicitation of Comments: We encourage the submission of comments
with respect to any aspect of this Regulatory Flexibility Act
Certification. To the extent that commenters believe that the proposed
rules if adopted might have a covered impact, we ask they describe the
nature of any impact and provide empirical data supporting the extent
of the impact. We will place any such comments in the same public file
as comments on the proposed amendments themselves.
VII. Statutory Basis
The Commission proposes the rule amendments 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 Part 240
Securities, Whistleblowing.
Text of the Proposed Amendments
For the reasons set out in the preamble, title 17, chapter II of
the Code of Federal Regulations is proposed to be amended as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
1. The authority citation for part 240 continues to read, in part, as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
Section 240.21F is also issued under Pub. L. 111-203, Sec.
922(a), 124 Stat. 1841 (2010).
* * * * *
[[Page 9295]]
Option 1
0
2. Amend Sec. 240.21F-3 by:
0
a. Revising paragraphs (b)(3) introductory text and (b)(3)(i) and
(iii); and
0
b. Adding paragraphs (b)(3)(iv), (v), and (vi).
The revisions and additions read as follows:
Sec. 240.21F-3 Payment of awards.
* * * * *
(b) * * *
(3) The following provision shall apply where a claimant's
application for a potential related action may also involve a potential
recovery from a comparable whistleblower award program (as defined in
paragraph (b)(3)(iv) of this section) for that same action.
(i) Notwithstanding paragraph (b)(1) of this section, if a judicial
or administrative action is subject to a separate monetary award
program established by the Federal Government, a state government, or a
self-regulatory organization (SRO), the Commission will only
potentially qualify for related-action status if either:
(A) The Commission finds that the maximum total award that could
potentially be paid by the Commission would not exceed $5 million; or
(B) The Commission finds (based on the facts and circumstances of
the action) that the Commission's whistleblower program has the more
direct or relevant connection to that action.
* * * * *
(iii) The conditions in paragraphs (b)(3)(iii)(A) through (C) of
this section apply to a determination under paragraph (b)(3)(ii) of
this section.
(A) The Commission shall not make a related-action award to a
claimant (or any payment on a related-action award if the Commission
has already made an award determination) if the claimant receives any
payment from the other program for that action.
(B) If a claimant was denied an award by the other award program,
the claimant will not be permitted to readjudicate any issues before
the Commission that the governmental/SRO entity responsible for
administering the other whistleblower award program resolved, pursuant
to a final order of such government/SRO entity, against the claimant as
part of the award denial.
(C) If the Commission makes an award before an award determination
is finalized by the governmental/SRO entity responsible for
administering the other award program, the award shall be conditioned
on the claimant making an irrevocable waiver of any claim to an award
from the other award program. The claimant's irrevocable waiver must be
made within 60 calendar days of the claimant receiving notification of
the Commission's final order.
(iv) The provisions of paragraphs (b)(3)(iv)(A) through (D) of this
section apply to program comparability determinations.
(A) For purposes of paragraph (b)(3) of this section, a comparable
whistleblower award program is an award program that satisfies the
following criteria:
(1) The award program is administered by an authority or entity
other than the Commission;
(2) The award program does not have an award range that could
operate in a particular action to yield an award for a claimant that is
meaningfully lower (when assessed against the maximum and minimum
potential awards that program would allow) than the award range that
the Commission's program could yield (i.e., 10 to 30 percent of
collected monetary sanctions); and
(3) The award program does not have a cap that could operate in a
particular action to yield an award for a claimant that is meaningfully
lower than the maximum award the Commission could grant for the action
(i.e., 30 percent of collected monetary sanctions in the related
action).
(4) The authority or entity administering the program may not in
its sole discretion deny an award notwithstanding the fact that a
whistleblower otherwise satisfies the established eligibility
requirements and award criteria.
(B) The Commission shall make a determination on a case-by-case
basis whether an alternative award program is a comparable award
program for purposes of the particular action on which the claimant is
seeking a related-action award with respect to paragraphs
(b)(3)(iv)(A)(1) through (3) of this section.
(C) If the Commission determines that an alternative award program
is not comparable, the Commission shall condition its award on the
meritorious whistleblower making within 60 calendar days of receiving
notification of the Commission's final award an irrevocable waiver of
any claim to an award from the other award program.
(D) A whistleblower whose related-action award application is
subject to the provisions of paragraph (b)(3) of this section
(including a whistleblower whose related-action award application
implicates another award program that does not qualify as a comparable
program as a result of paragraph (b)(3)(iv)(A) of this section) has the
affirmative obligation to demonstrate that the whistleblower has
complied with the terms and conditions of this section regarding an
irrevocable waiver. This shall include taking all steps necessary to
authorize the administrators of the other program to confirm to staff
in the Office of the Whistleblower (or in writing to the claimant or
the Commission) that an irrevocable waiver has been made.
(v) A claimant seeking a related-action award also has an
affirmative obligation to promptly inform the Office of the
Whistleblower if the claimant applies for an award on the same action
from another award program.
(vi) The Commission may deem a claimant ineligible for a related-
action award if any of the conditions and requirements of paragraph
(b)(3) of this section in connection with that related action are not
satisfied.
Option 2
0
3. Amend Sec. 240.21F-3 by revising paragraph (b)(3) to read as
follows:
Sec. 240.21F-3 Payment of awards.
* * * * *
(b) * * *
(3) The following terms and conditions apply whenever an award
claimant's application for an award in connection with a related action
may also involve a potential recovery from another whistleblower award
program for that same action.
(i) If the Commission determines that the claimant qualifies for an
award for the related action, any payment of that award shall be
conditioned on the claimant making an irrevocable waiver of any award
or potential award from the other award program. In determining whether
a claimant qualifies for an award on a related action (and in setting
the amount of any award), the Commission shall process the application
without regard to the existence of the alternative award program or any
award determination that the alternative program reaches.
(ii) The Commission shall not make a related-action award to a
claimant (or any payment on an award if the Commission has already made
an award determination) if the claimant has received at any point prior
to the Commission making any payment on a related-action award any
payment from the other program for that action.
(iii) To receive payment from the Commission for a related-action
award, a claimant must make an irrevocable waiver of any award from the
other program within 60 calendar days of receiving a final notification
from both
[[Page 9296]]
award programs regarding the award amounts.
(iv) A claimant subject to paragraph (b)(3) of this section has the
affirmative obligation to demonstrate to the satisfaction of the
Commission that the claimant has complied with the terms and conditions
of this section regarding an irrevocable waiver. This may include
taking all steps necessary to authorize the administrators of the other
program to confirm to staff in the Office of the Whistleblower (or in
writing to the claimant or the Commission) that an irrevocable waiver
has been made.
(v) A claimant seeking a related-action award has an affirmative
obligation to promptly notify the Office of the Whistleblower in
writing if the claimant applies for an award on the same action from
another award program.
(vi) The Commission may deem a claimant ineligible for a related-
action award if any of the conditions and requirements of paragraph
(b)(3) of this section in connection with that related action are not
satisfied.
0
4. Amend Sec. 240.21F-4 by revising paragraph (c)(2) to read as
follows:
Sec. 240.21F-4 Other definitions.
* * * * *
(c) * * *
(2) You gave the Commission original information about conduct that
was already under examination or investigation by the Commission, the
Congress, any other authority of the Federal Government, a state
attorney general or securities regulatory authority, any self-
regulatory organization, or the PCAOB (except in cases where you were
an original source of this information as defined in paragraph (b)(5)
of this section), and your submission significantly contributed to the
success of the action; or
* * * * *
0
5. Amend Sec. 240.21F-6 by adding paragraph (d) to read as follows:
Sec. 240.21F-6 Criteria for determining amount of award.
* * * * *
(d) Consideration of the dollar amount of an award. When applying
the award factors specified in paragraphs (a) and (b) of this section,
the Commission may consider the dollar amount of a potential award for
the limited purpose of increasing the award amount. The Commission
shall not, however, use the dollar amount of a potential award as a
basis to lower a potential award, including but not limited to in
applying the factors specified in paragraphs (a) and (b) of this
section.
0
6. Amend Sec. 240.21F-8 by revising paragraph (e)(4)(ii) to read as
follows:
Sec. 240.21F-8 Eligibility and forms.
* * * * *
(e) * * *
(4) * * *
(ii) If, within 30 calendar days of the Office of the Whistleblower
providing the foregoing notification, you withdraw the relevant award
application(s), the withdrawn award application(s) will not be
considered by the Commission in determining whether to exercise its
authority under paragraph (e) of this section.
0
7. Amend Sec. 240.21F-10 by revising paragraph (e) to read as follows:
Sec. 240.21F-10 Procedures for making a claim for a whistleblower
award in SEC actions that result in monetary sanctions in excess of
$1,000,000.
* * * * *
(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. In
applying the award factors specified in Sec. 240.21F-6, and
determining the award dollar and percentage amounts set forth in the
Preliminary Determination, the award factors may be considered by the
SEC staff and the Commission in dollar terms, percentage terms or some
combination thereof, subject to the limitations imposed by Sec.
240.21F-6(d). Should you choose to contest a Preliminary Determination,
you may set forth the reasons for your objection to the proposed amount
of an award, including the grounds therefore, in dollar terms,
percentage terms or some combination thereof.
(1) Before determining whether to contest a Preliminary
Determination, you may:
(i) Within 30 calendar 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) that formed the basis of the Claims Review Staff's
Preliminary Determination.
(ii) Within 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 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 60 calendar days of the Office of the
Whistleblower making those materials available for your review.
* * * * *
0
8. Amend Sec. 240.21F-11 by revising paragraphs (a), (c), and (e) to
read as follows:
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 in connection
with a related action (as defined in Sec. 240.21F-3).
* * * * *
(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/SRO entity (as
specified in Sec. 240.21F-3(b)(1)) 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.
Further, the Office of the Whistleblower, in its discretion, may seek
assistance and confirmation from the governmental/SRO entity in making
an award determination. Additionally, if your related-action award
application might implicate a second whistleblower program, the Office
of the Whistleblower is authorized to request information from you or
to contact any authority or entity responsible for administering that
other program, including disclosing the whistleblower's identity if
necessary, to ensure compliance with the terms of Sec. 240.21F-
3(b)(3).
* * * * *
(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. In
applying
[[Page 9297]]
the award factors specified in Sec. 240.21F-6, and determining the
award dollar and percentage amounts set forth in the Preliminary
Determination, the award factors may be considered by the SEC staff and
the Commission in dollar terms, percentage terms or some combination
thereof, subject to the limitations imposed by Sec. 240.21F-6(d).
Should you choose to contest a Preliminary Determination, you may set
forth the reasons for your objection to the proposed amount of an
award, including the grounds therefore, in dollar terms, percentage
terms or some combination thereof.
(1) Before determining whether to contest a Preliminary
Determination, you may:
(i) Within 30 calendar 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) that formed the basis of the Claims Review Staff's
Preliminary Determination.
(ii) Within 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 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 60 calendar days of the Office of the
Whistleblower making those materials available for your review.
* * * * *
By the Commission.
Dated: February 10, 2022.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022-03223 Filed 2-17-22; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 18, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.