Rule2022-18842
Whistleblower Program Rules
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 2, 2022
Effective
October 3, 2022
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("SEC" or "Commission") is adopting amendments to the Commission's rules implementing its whistleblower program. Section 21F of the Securities Exchange Act of 1934 ("Exchange Act") and the Commission's implementing rules provide that the Commission shall pay an award to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action or a non-SEC related action. The amendments: expand the scope of related actions eligible for an award under the Commission's whistleblower program; clarify that the Commission may use its statutory authority under Section 21F to consider the dollar amount of a potential award to increase an award but provide that the Commission will not use any statutory authority it might have to decrease the amount of an award; and make several conforming changes and technical corrections.
Full Text
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<title>Federal Register, Volume 87 Issue 170 (Friday, September 2, 2022)</title>
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[Federal Register Volume 87, Number 170 (Friday, September 2, 2022)]
[Rules and Regulations]
[Pages 54140-54152]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-18842]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-95620; File No. S7-07-22]
RIN 3235-AN03
Whistleblower Program Rules
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission (``SEC'' or
``Commission'') is adopting amendments to the Commission's rules
implementing its whistleblower program. Section 21F of the Securities
Exchange Act of 1934 (``Exchange Act'') and the Commission's
implementing rules provide that the Commission shall pay an award to
eligible whistleblowers who voluntarily provide the Commission with
original information about a violation of the federal securities laws
that leads to the successful enforcement of a covered judicial or
administrative action or a non-SEC related action. The amendments:
expand the scope of related actions eligible for an award under the
Commission's whistleblower program; clarify that the Commission may use
its statutory authority under Section 21F to consider the dollar amount
of a potential award to increase an award but provide that the
Commission will not use any statutory authority it might have to
decrease the amount of an award; and make several conforming changes
and technical corrections.
DATES: The final rules are effective October 3, 2022. These amendments
will apply to any whistleblower award application that is pending with
the Commission as of that date, and to all future-filed award
applications.
FOR FURTHER INFORMATION CONTACT: Emily Pasquinelli, Office of the
Whistleblower, Division of Enforcement, at (202) 551-5973, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is amending the rules listed
in the table below.
Amendments
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CFR citation
Commission reference (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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I. Introduction
The Commission's whistleblower rules, which are codified at 17 CFR
240.21F-1 through 17 CFR 240.21F-18, provide the operative definitions,
requirements, standards, and processes implementing the SEC's
whistleblower program. The amendments being adopted make several
changes to those rules.
First, the Commission is amending 17 CFR 240.21F-3(b)(3) or Rule
21F-3(b)(3) (hereinafter ``the Multiple-Recovery Rule'') to revise the
definition of ``related action.'' A whistleblower may be eligible for
an award from the SEC for certain non-SEC actions that meet the
definition of a related action under our rules. The Multiple-Recovery
Rule currently provides that when both the SEC's award program and
another award program might apply to a non-SEC action, that action will
be deemed a related action for purposes of an award from the Commission
only if the SEC's whistleblower program has the ``more direct or
relevant connection'' to the action. The amended Multiple-Recovery Rule
provides additional circumstances in which a non-SEC action may qualify
as a related action without regard to whether the Commission's program
has the more direct or relevant connection to the action. Specifically,
under the amended Multiple-Recovery Rule, a non-SEC action may qualify
as a related action:
<bullet> When the non-SEC award program has an award range or
fixed-dollar award cap that could yield an award that is meaningfully
lower than what could be awarded under the Commission's whistleblower
program;
<bullet> When the decision to grant an award under the non-SEC
program is discretionary, even when any specified award criteria and
eligibility requirements have been satisfied; and
<bullet> When the maximum award the Commission could potentially
pay on the non-SEC action does not exceed $5 million (``$5-million
provision'').
Second, the Commission is amending Rule 21F-6, which concerns the
Commission's discretion to apply award factors and set award amounts. A
new paragraph 21F-6(d) provides that the Commission may exercise its
authority to consider the dollar amount of a potential award when
making an award determination only for the purpose of increasing, not
decreasing, the award amount.
The Commission is also adopting conforming amendments to Rules 21F-
10 and 21F-11, as well as technical revisions to Rules 21F-4(c) and
21F-8 that correct errors in the rule text.
II. Description of Final Rule Amendments
A. Rule 21F-3(b)(3) Amendments Concerning Non-SEC Actions That Involve
at Least One Other Award Program
Under Exchange Act Section 21F, 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 non-SEC judicial or administrative action must
meet certain conditions to potentially qualify as a related action.
First, the action must be brought by the United States Department of
Justice (``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. Second, the same original information that the
whistleblower gave to the Commission must also have led to the
successful enforcement of the non-SEC action.
The Multiple-Recovery Rule imposes additional requirements for a
non-SEC action to qualify as a related action where both the SEC's
whistleblower program and at least one other, separate whistleblower
program could potentially apply to the action. Rule 21F-3(b)(3)
authorizes the Commission to pay an award on such an action only if the
Commission determines that the SEC's whistleblower program has the more
direct or relevant connection to the non-SEC action based on: (i) the
relative extent to which the misconduct involved in the non-SEC action
implicates the policy considerations 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 non-SEC action are attributable to conduct
[[Page 54141]]
that also underlies the Federal-securities-law violations that were the
subject of the SEC's covered action; and (iii) whether the non-SEC
action involves state-law claims, as well as the extent to which the
state may have a whistleblower award program that applies to that type
of law-enforcement action.\1\
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\1\ Another provision of the Multiple-Recovery Rule directs that
if a related-action claimant has already received an award from
another program, that claimant may not receive an award or payment
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 the claimant by the other program. And if the
Commission decides that its whistleblower program has the more
direct or relevant connection to the non-SEC 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. The amendments will not impact these
existing terms of the Multiple-Recovery Rule.
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1. Proposed Rule
The Commission proposed to revise the Multiple-Recovery Rule to
identify a limited number of additional circumstances under which a
non-SEC action constitutes a related action for award purposes. The
principal proposed revision was referred to as the ``Comparability
Approach,'' and was intended to help ensure that the Multiple-Recovery
Rule would not reduce whistleblowers' incentive to come forward, or
place an undue burden on whistleblowers as a result of having come
forward.\2\
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\2\ The Multiple-Recovery Rule is designed to prevent the
Commission's award program from displacing the important role that
Congress intended for other whistleblower programs and to further
the Commission's desire to continue to be a careful steward of the
Investor Protection Fund (``IPF''), from which Commission awards are
paid. The Comparability Approach is narrowly targeted to preserve
the underlying goals of the Multiple-Recovery Rule.
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The proposing release explained that the Comparability Approach
would allow the Commission to treats a non-SEC action as a related
action if the maximum potential monetary award from the alternative
award program would be ``meaningfully lower'' than the maximum
potential award from the Commission's program (i.e., 30 percent ``in
total, of what has been collected of the monetary sanctions imposed'').
The meaningfully lower standard could be triggered either because the
other program involves a different award range or imposes a fixed-
dollar award cap. The proposed Comparability Approach would also
authorize the Commission (without regard to which program has the more
direct or relevant connection) to treat a non-SEC action as a related
action if the decision whether to issue an award under the other
program is entirely discretionary.
To incorporate these aspects of the Comparability Approach into the
Multiple-Recovery Rule, the Commission proposed to amend the opening
sentence of Rule 21F-3(b)(3) to provide that the Multiple-Recovery Rule
would not apply unless the other whistleblower program qualifies as a
``comparable whistleblower program.'' A comparable whistleblower
program would be defined, in turn, as an award program that: (i) does
not have an award range or fixed-dollar award cap that would restrict
the maximum potential award to an amount that is meaningfully lower
than the maximum or minimum potential award to all eligible claimants
(in dollar terms) that the Commission could make on the particular
action; or (ii) does not afford the entity administering the other
program with discretion to deny an award even if the established
eligibility requirements and award criteria have been satisfied.
The Commission further proposed that, under the Comparability
Approach, the Multiple-Recovery Rule would be amended so that the
Commission would deem a matter eligible for related-action status
(without regard to which program has the more direct or relevant
connection to the action) if the maximum award the Commission could
under any circumstances be required to pay to all whistleblowers in
connection with the non-SEC action would not exceed $5 million. As the
Commission explained, this would occur when 30 percent of the monetary
sanctions imposed in the non-SEC action would be a sum that is $5
million or less.\3\
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\3\ To ensure that a claimant would not receive multiple awards
for the same non-SEC action, the proposed amendments would require
that a claimant make an irrevocable waiver of any claim to an award
from the other program within 60 calendar days of receiving notice
of the Commission's award, and would also require the claimant to
demonstrate compliance with the irrevocable-waiver requirement. The
proposed amendments also provided that failure to comply with any of
the terms or conditions of the amended rule could result in the
claimant becoming ineligible for an award from the Commission on the
non-SEC action (notwithstanding any prior award notice).
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Although the Comparability Approach was the principal proposal
offered for public comment, the Commission identified three other
possible alternatives: the ``Whistleblower's Choice Option,'' the
``Offset Approach,'' and the ``Topping-Off Approach.'' Under both the
Whistleblower's Choice Option and the Offset Approach, current Rule
21F-3(b)(3) would be repealed in its entirety. The Whistleblower's
Choice Option would allow a whistleblower, after having received award
determinations from the Commission and the entity administering the
other program, to decide which award to accept (but the Commission
would condition any payment from its program on the whistleblower first
making an irrevocable waiver of any claim to an award from the other
program). Under the Offset Approach, the Commission could make an award
on a non-SEC action notwithstanding the potential that another program
might make and pay an award on that same action, but the Commission
would offset its payment by any amount another program pays on the same
action. Under the Topping-Off Approach, the current framework of the
Multiple-Recovery Rule would be retained but the Commission would have
the discretion to increase the award amount on the Commission's own
covered action (up to a total award of 30 percent of the monetary
sanctions imposed) if the Commission concluded that the other program's
award for the non-SEC action was inadequate.
2. Comments Received
Virtually all of the commenters supported modifying the Multiple-
Recovery Rule to encompass additional circumstances in which non-SEC
actions qualify as related actions, with some offering a view on which
of the four proposed alternatives would be the best option.\4\
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\4\ See, e.g., Anonymous (Apr. 12, 2022) (stating the ``four
proposed approaches to address related action claims'' are a ``well
thought-out and flexible strategy that seem designed to improve
related action award determinations''); Eileen Morrell (Apr. 11,
2022) (expressing general support for the proposed changes but not
identifying a preference among the four Rule 21F-3(b)(3)
alternatives that were offered for public comment).
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The commenters generally favored either the Comparability Approach
or the Whistleblower's Choice Option,\5\ though two commenters
supported the Offset Approach, one commenter expressed a preference for
the Topping-Off Approach, and several other commenters offered their
own proposed approaches.\6\
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\5\ One commenter made a general observation applicable to both
the Comparability Approach and the Whistleblower's Choice Option
that a claimant failing to comply with the irrevocable waiver or
notice provisions of these proposed approaches ``should not be
wholly disqualified from [a] reward unless egregious or malicious
noncompliance is evidenced.'' Mark C. (Feb. 19, 2022). The proposed
rule text for both options would permit the Commission in its
discretion to factor these considerations into any determination
relating to a claimant's non-compliance.
\6\ See infra notes 27-34.
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[[Page 54142]]
A number of commenters favored the Comparability Approach. One
stated that this approach ``strikes the appropriate balance between
ensuring that qualified whistleblowers are not subject to a diminished
award due to a weaker alternative whistleblower program while also
limiting the ability of whistleblowers to obtain a double recovery in a
related action.'' \7\ Another commenter stated that the Comparability
Approach would be ``extremely practical'' in situations where the award
range is different, the other program has a fixed-dollar award cap, or
the other program ``is discretionary[,] not mandatory[.]'' \8\ A third
commenter expressed a preference for the Comparability Approach because
it may impose less of an administrative burden on the staff and agency
than the other proposals.\9\
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\7\ NWC (Apr. 7, 2022) (``NWC supports the Comparability
Approach proposed by the Commission.'').
\8\ Anonymous-2 (Feb. 19, 2022).
\9\ Mark C. (Feb. 19, 2022).
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A few commenters raised concerns about the Comparability Approach.
One stated that the Comparability Approach is ``confusing'' and ``would
be difficult to administer.'' \10\ But a different commenter offered a
contrary view, stating that ``[t]he Comparability Approach is laid out
in a way that is easy to follow and understand how a whistleblower will
be awarded by the SEC over another program.'' \11\ And another
commenter stated that the Comparability Approach was suboptimal because
it ``would result in . . . a penalty in situations in which the other
whistleblower program was found to be `comparable' and has the `more
direct or relevant connection' '' to the non-SEC action ``yet provides
for a smaller award than the SEC would provide.'' \12\
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\10\ Kohn, Kohn & Colapinto, LLP (Mar. 22, 2022) (``The better
choice is [Whistleblower's Choice] which sets forth clear standards
and procedures.'').
\11\ Talia Finamore (Apr. 3, 2022).
\12\ Cohen, Milstein, Sellers & Toll PLLC (Apr. 8, 2022). This
commenter did state, however, that ``each of the proposed
alternatives represents improvements over the [existing] Multiple-
Recovery Rule[.]''
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Several commenters addressed specific elements of the Comparability
Approach. For example, one commenter suggested that the $5-million
provision of the Comparability Approach should be replaced with a
provision authorizing the Commission to treat any non-SEC action that
might implicate another award program as a potential related action for
which the Commission would agree to pay an award equal to ``a minimum
of 5% and maximum of 10% of the total amount of monetary sanctions
recovered'' in that non-SEC action. The commenter stated that
refashioning this aspect of the Comparability Approach would be
``fair[er]'' for larger actions that would otherwise be excluded under
the $5-million provision.\13\ Similarly, another commenter recommended
that, instead of $5 million or some other fixed dollar amount, a
percentage-based maximum might be better in case the whistleblower
program rules are not regularly updated in the future.\14\ One
commenter recommended that if the Comparability Approach is adopted, it
should authorize an award whenever the total payout for the SEC's
action and the non-SEC action would not collectively exceed $20
million.\15\
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\13\ Id.
\14\ Mark C. (Feb. 19, 2022). Unlike the prior commenter, this
commenter did not offer a suggestion of a particular percentage
figure (or range).
\15\ Kohn, Kohn, and Colapinto (Apr. 11, 2022).
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Several commenters addressed the meaningfully lower standard for
determining whether an alternative program is comparable.\16\ One such
commenter explained that a benefit of the meaningfully lower standard
is that it would allow the Commission to ``consider[ ] a
whistleblower's financial circumstances when they volunteer information
to the Commission.'' \17\ Another commenter recommended that the
meaningfully lower standard must always be understood to encompass an
award from another program that is ``less than 10%'' of the monetary
sanctions collected in the non-SEC action.\18\
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\16\ No commenter recommended replacing the meaningfully lower
standard with a fixed number or percentage.
\17\ Cornell Securities Law Clinic (Apr. 11, 2022). This
commenter also opposed a fixed-dollar or percentage amount in lieu
of the meaningfully lower standard ``because of the law of
diminishing marginal returns.'' This commenter suggested that the
meaningfully lower standard should focus on capturing award
differences ``that are substantial enough to incentivize
whistleblowers to volunteer pertinent information, often at the risk
of their careers.''
\18\ Kohn, Kohn & Colapinto, LLC (Apr. 11, 2022).
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One commenter recommended that if another award program lacks the
confidentiality protections that the SEC's program affords, then it
should not be deemed comparable.\19\ As support, the commenter stated
that ``Congress adopted very specific procedures that permit the SEC to
forward information to alternative government programs that also
protect the identity of the whistleblower and require these alternative
government agencies to adhere to the [Section 21F(h)(2)]
confidentiality rules.'' \20\
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\19\ Kohn, Kohn & Colapinto, LLP (Apr. 11, 2022) (``The right to
confidentiality must be part of any `comparable' related action.''
(emphasis in original)).
\20\ Id.
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Several commenters supported the Whistleblower's Choice Option. One
stated that a benefit of that approach is that if ``either
whistleblower rewards program is proposing to issue an award that the
whistleblower feels is inadequate, then he/she has the choice of which
program they want to [pay] the award based on their own
determination.'' \21\ Similarly, another commenter stated that
whistleblowers ``should get to decide which [award] they receive.''
\22\ And one commenter stated that the Whistleblower's Choice Option is
preferable because it would: (1) have the Commission focus only on
``the merits and eligibility of the whistleblower under the
requirements of just the SEC program,'' because ``[w]hether or not
another program applies should not impact the SEC's ultimate decision''
for an award determination; and (2) make ``the process more clear,
straightforward, and understandable for the average claimant[]'' by
removing ``a step from how the Commission currently processes
claims[.]'' \23\ Finally, a commenter stated that under the
Whistleblower's Choice Option ``whistleblowers will no longer
intentionally withhold certain applications or information out of fear
that the eventual awards will be severely limited by another program's
restrictions because they will be allowed to choose the most favorable
[award] option.'' \24\
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\21\ Anonymous-2 (Feb. 19, 2022). See also Cohen, Milstein,
Sellers & Toll PLLC (Apr. 8, 2022) (stating that the Whistleblower's
Choice Option was the only option under which whistleblowers would
under no circumstances be at risk of being ``penalized'' by being
required to take an award from another agency ``when their
information leads to a related action recovery that implicates both
the SEC's and another agency's whistleblower program''); Laura
Bonomini (Mar. 21, 2022) (stating that the Whistleblower's Choice
Option would ``give[] the meritorious whistleblower agency over
their own claim'').
\22\ Talia Finamore (Apr. 3, 2022).
\23\ Laura Bonomini (Mar. 21, 2022). See also Cornell Securities
Law Clinic (Apr. 11, 2022) (stating that by eliminating the need to
assess which program has a more ``direct or relevant'' connection to
a case, or to assess the comparability of another program to the
Commission's program in connection with a particular application,
the Whistleblower's Choice Option would enhance ``administrative
efficiency'' and ``reduc[e] administrative costs''); Kohn, Kohn &
Colapinto, LLP (Mar. 22, 2022) (stating that the Whistleblower's
Choice Option would be ``less confusing and simpler to implement''
than the other approaches proposed).
\24\ Cornell Securities Law Clinic (Apr. 11, 2022) (explaining
that in ``cases where the alternative programs provide significantly
fewer financial incentives than the Commission's Program (i.e.,
absolute dollar ceilings for awards), it becomes very plausible that
some potential-whistleblowers may make certain application decisions
(i.e., withholding certain information) to avoid pitfalls that will
severely limit their financial award later on'').
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[[Page 54143]]
One commenter identified the risk that the Whistleblower's Choice
Option could lead to award-processing delays because any payment of an
award would depend on both the Commission's program and the alternative
award program issuing their award determinations before a claimant
could decide which of the awards to accept.\25\ Several other
commenters identified potential modifications to the Whistleblower's
Choice Option, including revising the Whistleblower's Choice Option so
that a whistleblower could receive both a full award from the
Commission and an award from the other agency that is 10 percent or
less ``of the sanction'' collected in the non-SEC action. According to
the commenter, this 10-percent exception from the general multiple-
recovery prohibition embodied in the Whistleblower's Choice Option is
reasonable because it would permit only a relatively de minimis
separate recovery, and it would be appropriate to permit a
whistleblower to ``accept[ ] a small award'' payment from the other
program without being subjected to mandatory disqualification under the
SEC's program.\26\
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\25\ Talia Finamore (Apr. 3, 2022).
\26\ Kohn, Kohn & Colapinto, LLP (Mar. 22, 2022). See also Kohn,
Kohn & Colapinto, LLP (Apr. 11, 2022) (stating that the Commission
should not bar a whistleblower from receiving a related-action award
if the whistleblower received a payment from another agency that is
below the 10-percent minimum award authorized by Section 21F of the
Exchange Act, unless the whistleblower knowingly and voluntarily
waived a right to a Commission related-action award).
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Two commenters supported the Offset Approach. One stated, without
explanation, that the Offset Approach could produce more prompt awards
and perhaps further incentivize whistleblowers to come forward.\27\ The
other commenter stated that the Offset Approach is a ``good option as
it allows the whistleblower to receive money from both programs but not
actually double dip.'' \28\ But a commenter opposing the Offset
Approach stated that it could violate the principle underlying proposed
Rule 21F-6(d) that would prohibit the Commission from considering
dollar amounts when adjusting award amounts downward.\29\
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\27\ John Lao (Feb. 20, 2022).
\28\ Talia Finamore (Apr. 3, 2022). This commenter acknowledged,
however, that a potential difficulty with the Offset Approach is
that it could take more processing time as it requires the other
award program to make an award determination before the Commission
could complete its award determination.
\29\ Andres Rodriquez (Apr. 3, 2022).
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One commenter supported the Topping-Off Approach, stating, without
explanation, that it could produce prompt awards.\30\ Another commenter
opposed the Topping-Off Approach, however, stating that ``[t]he
topping-off approach feels confusing in how it would be
implemented[.]'' \31\
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\30\ John Lao (Feb. 20, 2022).
\31\ Talia Finamore (Apr. 3, 2022).
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Beyond the four approaches discussed above, several commenters
included recommendations for other approaches. Two commenters stated
that whistleblowers should be allowed to receive awards from all
programs for which they qualify, even if this could result in the
aggregate payout to whistleblowers for the non-SEC action exceeding 30
percent of the sanctions collected in the action.\32\ According to one
of these commenters, the Commission should effectuate this by ``simply
rescinding the Multiple-Recovery Rule.'' \33\ Another commenter
recommended that ``all whistleblower reports for publicly traded
companies should be considered for SEC program awards'' irrespective of
whether another program might have the more direct or relevant
connection to the non-SEC action in question.\34\
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\32\ Anonymous (Feb. 8, 2022); Better Markets (Apr. 11, 2022).
See also Andres Rodriquez (Apr. 3, 2022) (suggesting an approach
``whereby a whistleblower would receive the full amount of monetary
awards by the [C]ommission in instances where whistleblowers also
receive awards from other comparable programs'').
\33\ This commenter asserted that the Commission may lack
statutory authority ``to deny an award for a related action'' merely
because another award program might also apply and might make an
award too. Better Markets (Apr. 11, 2022) (stating that the ``plain
language'' of Section 21F makes related-action award payments
mandatory and that, while the statute ``establishe[s] the
circumstances under which the SEC must deny an award,'' none of
those involves the potential application of another award program).
The commenter goes on to recommend that if the Commission declines
to rescind the Multiple-Recovery Rule, the ``optimal'' alternative
is the Whistleblower's Choice Option. The commenter states that
``the other proposed approaches leave[] open the possibility that
the SEC will not, itself, make an award to an otherwise eligible
whistleblower for a related action,'' which (according to the
commenter) ``conflicts with the letter and spirit of'' Section 21F.
\34\ Joshua Moran (Apr. 12, 2022) (stating that it ``is unclear
what other programs exist that would be more relevant'' where a
publicly traded company is involved).
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3. Final Rule
The Commission is adopting the Comparability Approach as proposed,
because it is a practical, targeted modification of the Multiple-
Recovery Rule that will provide additional incentives to encourage
individuals to report potential violations of the federal securities
laws when another program has a statutory cap, significantly lower
award range, or discretionary award structure.\35\ The Commission
agrees with the statement that the Comparability Approach ``strikes the
appropriate balance between ensuring that qualified whistleblowers are
not subject to a diminished award due to a weaker alternative
whistleblower program while also limiting the ability of whistleblowers
to obtain a double recovery'' in a non-SEC action.\36\ The Commission
also agrees that, as one commenter stated, ``[t]he Comparability
Approach is laid out in a way that is easy to follow and understand''
for whistleblowers to assess when they might be awarded more for a non-
SEC action ``by the SEC's program instead of another award program, and
vice versa.'' \37\
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\35\ The Commission is not persuaded that the Comparability
Approach ``would result in . . . a penalty in situations where'' the
other program is comparable and a whistleblower is required to seek
an award from that other program. Cohen, Milstein, Sellers & Toll
PLLC (Apr. 8, 2022). The commenter states that a penalty would
result because the other program ``provides for a smaller award than
the SEC would provide.'' But to qualify as a comparable program the
alternative program would have to have a structure that could result
in awards comparable to those that could be made by the Commission,
so any ``smaller award'' would not be a product of the other award
program's award structure. Rather, any risk of a ``smaller award''
presumably would reflect the potential that the Commission and the
other program might reach different conclusions about the
appropriate award amount after an assessment of the facts and
circumstances underlying a particular award application. And this
resulting risk of a smaller award in any particular case is in any
event counterbalanced by the potential that the other program might
view the particular award application more favorably than the
Commission might.
\36\ NWC (Apr. 7, 2022).
\37\ Talia Finamore (Apr. 3, 2022).
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Although the comments made thoughtful arguments in support of the
Whistleblower's Choice Option, the Offset Approach, and the Topping-Off
Approach, the Commission on balance finds each of these alternatives
less desirable given various competing considerations. As a threshold
matter, these three alternatives could add significant delay to the
processing of applications and/or payment of awards, because each could
require the Commission to defer any award until the other program has
made an award determination.\38\ Under the
[[Page 54144]]
whistleblower program that is administered by the Internal Revenue
Service (``IRS''), for example, final decisions cannot ``be made until
proceeds resulting from the action(s) have been collected'' and, even
then, a final decision may be postponed until the multi-year
``statutory period for [a taxpayer's] filing a claim for a refund has
expired[.]'' \39\ Were the Commission to adopt the Whistleblower's
Choice Option, the Commission's award process in such a case might be
delayed (and thus no payment made) for a period of several additional
years awaiting a final award determination from the IRS.\40\ And the
same could be true with the Offset Approach, because the Commission
would be required to withhold any payment to avoid the risk of
overpaying for an amount that the IRS might ultimately pay.
Importantly, any timing delays resulting from other award programs
would potentially impact all award matters involving non-SEC actions
that implicate a second award program; by contrast, under the Multiple-
Recovery Rule (as amended by the Comparability Approach) the Commission
will experience no such delays on awards for non-SEC actions because
the revised rule does not hinge on the award processes or
determinations of the other program.\41\ The Topping-Off Approach would
also pose a risk of delay because before determining whether and how
much to ``top off'' a covered-action award the Commission would need to
await a final determination from the other program on the non-SEC
action.\42\
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\38\ The proposing release briefly posited that the
Whistleblower's Choice Option would not result in delay due to
another award program's delays in making an award-determination. For
the reasons explained above, however, the Commission agrees with a
commenter's observation that Whistleblower's Choice would add delays
to the processing time for awards. See Talia Finamore (Apr. 3,
2022). The proposing release did observe, however, that the
Whistleblower's Choice Option could cause delays because of the
additional burden it might impose on limited staff resources. See 87
FR 9280, 9287 (``[T]he 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.'').
\39\ Internal Revenue Service, Special Topics Manual,
25.2.2.6.1(1), available at <a href="https://www.irs.gov/irm/part25/irm_25-002-002">https://www.irs.gov/irm/part25/irm_25-002-002</a>.
\40\ Internal Revenue Service, Chief Counsel Directives Manual
for Litigation in District Court, Bankruptcy Court, Court of Federal
Claims, and State Court, 34.5.2.4.2.1(1), available at <a href="https://www.irs.gov/irm/part34/irm_34-005-002#idm140486826695168">https://www.irs.gov/irm/part34/irm_34-005-002#idm140486826695168</a>
(``Generally, the taxpayer must file a claim for refund within three
years from the time he files his return or within two years from the
time the tax was paid, whichever is later. If no tax return was
filed, a claim must be filed within two years from the time the tax
was paid.'' (internal citation omitted)).
\41\ In the context of the Whistleblower's Choice Option, delays
resulting from the other award program could cause meritorious
whistleblowers to abandon (preemptively irrevocably waive) their
claims before a final award determination is made by that other
program so that they can proceed to accept the Commission's award
offer. This would result in the IPF (from which SEC whistleblower
awards are paid, see Exchange Act Section 21F(g)) absorbing costs
resulting from delays and inefficiencies tied exclusively to another
award program.
\42\ Beyond the potential for processing and payment delays, the
Commission also finds the Topping-Off Approach less desirable
because, as explained in the proposing release, ``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.''
87 FR 9280, 9288. This would especially be so ``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.'' Id. In such
instances, ``the Commission would not have the ability to grant a
significant percentage enhancement.'' Id.
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An additional consideration that persuades the Commission that the
Whistleblower's Choice Option, the Offset Approach, and the Topping-Off
Approach are less desirable alternatives is the potential that these
alternatives could create unintended friction between the Commission
and our partner regulatory and law-enforcement agencies that oversee
alternative award programs. Unlike under the Comparability Approach,
there is a risk under each of the alternative approaches that the
Commission and one of these other authorities would make ``conflicting
factual determinations'' after reviewing the same non-SEC action.\43\
And under each of the alternatives there is the additional risk that a
whistleblower could receive an award from the SEC's program for a non-
SEC action even though the whistleblower failed to satisfy a
significant eligibility requirement or award criterion that may be
based on important policy considerations and judgments by the other
regulatory or law-enforcement authority.\44\ The Commission believes
that minimizing the potential for situations in which the SEC could be
perceived to second-guess or preempt the judgments of our partner
regulatory and law-enforcement authorities favors the Comparability
Approach over the other alternatives.\45\
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\43\ Id. at 9287.
\44\ Id.
\45\ Although two commenters recommended that the Commission
allow multiple awards to a whistleblower for the same non-SEC action
(even where the aggregate award on the action would exceed the 30-
percent maximum award that is the general award ceiling under
federal whistleblower award programs), such an approach could be
inconsistent with congressional intent. 87 FR 9283; 85 FR 70898,
70908-09 & n.93.
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Several commenters recommended various modifications to the
Comparability Approach, but the Commission is not persuaded that those
revisions are warranted or appropriate. The suggestions generally
concerned the meaningfully lower standard and the $5-million
provision.\46\
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\46\ Although one commenter suggested that the scope of the
definition of comparable whistleblower award program should be
expanded to require that the other award program include heightened
confidentiality measures comparable to those that Section 21F(h)(2)
of the Exchange Act imposes on the Commission, the Commission is not
persuaded that this is necessary. As the commenter itself explains,
Section 21F(h)(2)'s heightened confidentiality requirements extend
to other specified authorities and entities, which includes the
authorities and entities that can bring actions that qualify as
``related actions.'' Compare id. Section 21F(h)(2)(D) with id.
Section 21F(a)(5). This appears to address to a substantial degree
the underlying concern about confidentiality without modifying the
Comparability Approach.
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Turning first to the meaningfully lower standard that is used to
assess whether an alternative award program is a comparable program,
the Commission is persuaded that this flexible standard is appropriate
and that a fixed-dollar cap or percentage amount would not offer any
programmatic advantages. For example, under this standard, a
whistleblower might argue that the Commission should consider the
particular whistleblower's own economic situation at the time that the
individual reported the securities-law violation.\47\ The Commission
does not agree that any time another program could yield an award that
is below the Commission's 10-percent minimum award amount an award
under the other program should automatically qualify as meaningfully
lower.\48\ The commenter offered no persuasive justification for this
position, and the Commission is unpersuaded to depart from the
flexible, case-specific approach that the meaningfully lower standard
affords.
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\47\ See supra note 17 and accompanying discussion.
\48\ See supra note 8 and accompanying discussion.
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With respect to the $5-million provision of the Comparability
Approach, the Commission has decided not to adopt the revisions
suggested by commenters. In the Commission's view, it is appropriate to
allow related-action awards (assuming the other relevant criteria are
met) for a non-SEC action without regard to whether another award
program has a more direct or relevant connection to the action when the
maximum award the Commission could ever potentially be required to pay
in the action would not exceed $5 million. As the proposing release
explained, ``[w]hen the maximum award amount'' would not exceed $5
million under any set of circumstances (i.e., if the entire amount of
the monetary sanctions was in fact collected), it is reasonable to
permit claimants the option of avoiding the expense and burden of
applying to a second award
[[Page 54145]]
program and instead electing to pursue their related-action claims with
the Commission.\49\ The Commission does not agree that, in lieu of the
$5-million provision, the Commission should authorize payouts of ``a
minimum of 5% and maximum of 10% of the total monetary sanctions
received'' for all non-SEC actions where another award program applies
(without regard to which program has the more direct or relevant
connection).\50\ The Commission is concerned that this proposed
modification could be contrary to Section 21F(b), which provides for a
minimum award of ``not less than 10 percent'' of the collected monetary
sanctions in an action. More fundamentally, this proposal (unlike the
$5-million provision) fails to align closely with the Commission's core
concern of lessening the expenses and other burdens on claimants in
those instances where the non-SEC action would involve only a
relatively small award amount.
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\49\ 87 FR 9280, 9285.
\50\ See supra note 13 and accompanying discussion.
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Similarly, the Commission is unpersuaded that the $5-million
provision should be replaced with a ``percentage-based figure''
(presumably a percentage at or above the statutory minimum 10-percent
award).\51\ Even if only a minimum award amount of just 10 percent were
adopted, this could still produce very large payouts in non-SEC actions
that involve very large collected monetary sanctions.\52\ Given this
potential, the Commission is persuaded that a percentage-based figure
would not align as closely with the Commission's underlying policy
concerns as the $5-million provision that is being adopted.
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\51\ See supra note 14 and accompanying discussion.
\52\ As an example, were the Commission to provide that it will
pay a 10-percent award on any non-SEC action even if another program
might have a more direct or relevant connection to the action, then
in a $100 million case the Commission would make a $10 million
payout.
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Further, the Commission declines to modify the $5-million provision
so that a non-SEC action could qualify as a related action
(irrespective of which program has the more direct or relevant
connection) if the total possible payout on that action and the
Commission's covered action would be $20 million or less.\53\ As with
the prior recommendation, the proposed revision would not align as well
as the $5-million provision does with the overall objective of
alleviating the risk that claimants might have to bear additional costs
and burdens of dealing with another award program where the potential
maximum payout on a non-SEC action is relatively small. The $5-million
provision, by focusing on the potential payout of the related action
alone, is better tailored to address the underlying policy concern.
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\53\ See supra note 15 and accompanying discussion.
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Finally, the following principles will apply where more than one
individual provides information to the Commission that leads to the
success of the action and the other award program is not comparable.
Where two or more individuals are whistleblowers and they did not act
jointly to contribute to the success of a related action (and the
Commission determines that the other agency's award program was not
comparable or that the maximum aggregate award payable would not exceed
$5 million), each whistleblower will be able to determine separately
whether to proceed under the Commission's program. Additionally, as is
the case with all related-action claims involving multiple, independent
whistleblowers, each claimant's application will be assessed separately
to determine whether the applicant qualifies for an award. And in
determining the appropriate award amount for any whistleblower who has
elected to proceed under the SEC's program, the award guidelines and
considerations specified in Exchange Act Rule 21F-5 \54\ and Rule 21F-6
will be used in making the award assessment. Relatedly, when setting
the award amount for any whistleblower who proceeds 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
will 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. But individuals who
jointly provided the Commission with information will have to determine
collectively to proceed under the Commission's program or the other
program. This approach is consistent with the Commission's long-
standing practice of treating individuals who acted jointly as a single
unit for assessing eligibility requirements, applying the award
criteria, and determining a specific award amount. See generally
Section 21F(a)(6) of the Exchange Act (referring to ``2 or more
individuals acting jointly'' to provide information to the Commission).
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\54\ 17 CFR 240.21F-5.
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For the foregoing reasons, the Commission is adopting the
Comparability Approach.
* * * * *
Below is a decision tree that outlines how the amendments to Rule
21F-3(b)(3) that effectuate the Comparability Approach will generally
operate.
Step 1. Is there 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, is it a ``comparable award program''?
<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 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: (i) 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 (ii) 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 (i) and (ii) above is ``no,'' then
the matter is not a related action.
<bullet> If the answer to (i) and/or (ii) 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.
B. Rule 21F-6(d) Amendment Regarding Consideration of the Potential
Dollar Amount of an Award When Making an Award Determination
Rule 21F-6 identifies the general criteria and standards that the
Commission considers when determining the amount of an award. Rule 21F-
6(a) specifies that in deciding whether to increase an award the
Commission will consider: (1) the significance of a whistleblower's
[[Page 54146]]
information to the action's success; (2) the degree of assistance
provided by the whistleblower; (3) any Commission programmatic
interests in deterring securities-law violations by making awards to
whistleblowers; and (4) the whistleblower's participation in an
internal compliance system. Rule 21F-6(b) provides that in determining
whether to decrease the amount of an award the Commission will
consider: (1) the whistleblower's culpability or involvement in matters
associated with the Commission's action or related actions; (2) whether
the whistleblower unreasonably delayed reporting the misconduct; and
(3) whether the whistleblower undermined the integrity of an entity's
internal compliance and reporting system. Finally, Rule 21F-6(c)
establishes a presumption that (provided certain specified exclusions
are not implicated) a whistleblower should receive the maximum
statutorily permissible award amount if, based on the sums that have
been collected or that are likely to be collected, the statutory
maximum award in the aggregate for any covered and related actions will
not exceed $5 million.
1. Proposed Rule
The Commission proposed to add new paragraph (d) to Rule 21F-6 to
cabin the Commission's use of its statutory authority to consider the
dollar amount of an award when setting the award amount. Proposed
paragraph (d) would restrict the Commission from considering the dollar
amount of a potential award (when applying the award factors specified
in Rule 21F-6, or in any other way) to decrease a potential award. But
proposed paragraph (d) would reaffirm that the Commission may consider
the dollar amount of a potential award for the limited purpose of
increasing the award amount.
Taken together, the provisions of proposed paragraph (d) would
ensure that potentially large awards are not decreased because of their
size, thus embodying a regulatory and programmatic determination by the
Commission that ``large awards directly [advance] the purpose of the
whistleblower program (and by extension the interests of the investing
public) by incentivizing whistleblowers to report violations [of the
securities laws] to the Commission.'' \55\ The Commission further
reasoned that, because public information regarding how the Commission
applies award factors is necessarily limited to avoid the release of
information that could reveal a whistleblower's identity,\56\
uncertainty about the authority to lower potential awards based on
their dollar amount risked creating the misimpression that the
Commission is regularly exercising such authority. The proposing
release expressed the concern that this could in turn deter individuals
from reporting misconduct.
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\55\ Nothing about the proposed rule would disturb the
Commission's long-standing practice in public whistleblower award
orders of describing awards in appropriate dollar amounts, rather
than percentages (which are generally redacted). Relatedly,
paragraph (d) does ``not impact . . . the maximum-award presumption
that Rule 21F-6(c) establishes.'' 87 FR 9280, 9291 n.65.
\56\ See generally Exchange Act Section 21F(h)(2).
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2. Comments Received
The commenters that specifically addressed the proposed addition of
paragraph (d) to Rule 21F-6 supported the proposal. Moreover, the
reasons offered in support of the proposed amendment largely tracked
the reasons the Commission advanced in the proposing release. For
example, several of the commenters stated that the proposed amendment
would address the concern that lowering an award based on the dollar
size might discourage whistleblowers from coming forward.\57\
Relatedly, one commenter stated that the proposed change would reduce
whistleblower uncertainty and increase whistleblower confidence in
reporting violations.\58\
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\57\ See Cornell Securities Law Clinic (Apr. 11, 2022)
(explaining that removing the authority to reduce awards based on
dollar size is appropriate because the risk the Commission might
reduce awards in this way ``would only instill more hesitation for
people that are considering coming forward with pertinent
information''); Better Markets (Apr. 11, 2022) (expressing support
for limiting the authority of the Commission to lower dollar awards
based on their dollar size for the reasons the Commission stated in
the proposing release, including that ``high dollar awards serve the
purpose of the whistleblower program by drawing public attention and
thereby incentivizing whistleblowers to come forward''); Cohen,
Milstein, Sellers & Toll PLLC (Apr. 8, 2022) (expressing support for
the proposed change to Rule 21F-6 because ``discretionary authority
to consider the dollar amount to reduce the size of awards adds
uncertainty and decreases confidence in the award process,'' while
``large awards increase the awareness of, and incentives to
participate in, the SEC's whistleblower program''); Lee (Feb. 21,
2022) (stating that the proposed amendment would be ``a crucial tool
in the form of an incentive to motivate whistleblowers of the
highest levels''); Benjamin Ng (Feb. 21, 2022) (``Clarifying that
the Commission will never reduce award sums to whistleblowers is an
important incentive for motivating whistleblowers of the highest
levels.''). See also Kohn, Kohn & Colapinto, LLC (Apr. 11, 2022)
(``strongly endors[ing] the proposed Rule 21F-6(d) as written'' and
explaining that ``[b]y paying larger rewards, the Commission will
incentivize high quality reporting from well-placed insiders, and
will significantly increase the deterrent effect of the Dodd-Frank
Act''); Cornell Securities Law Clinic (Apr. 11, 2022) (supporting
the Commission's ``discretion to increase award amounts'' because
``large awards generate more public interest''); NWC (Apr. 7, 2022)
(stating the proposed amendment ``clarif[ies] that whistleblowers in
large cases, who meet the criteria for enhanced awards, will not be
prejudiced simply based on the size of a sanction'').
\58\ See Andres Rodriquez (Apr. 3, 2022).
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3. Final Rule
The Commission has decided to amend Rule 21F-6 by adopting new
paragraph (d) as proposed. For the reasons set forth in the proposing
release and supported by the comments received on this proposal, this
amendment will help strengthen the whistleblower program by encouraging
high-quality tips from insiders and others who have original
information relating to potential securities law violations.
C. Technical and Conforming Amendments to Rules 21-4(c), 21F-8(e), 21F-
10, and 21F-11
In the proposing release, the Commission identified various
technical amendments to Rules 21F-4(c) and 21F-8(c) to correct errors
in the rule text. No comments were received on these proposed
modifications. For the reasons explained in the proposing release, the
Commission is adopting the proposed technical amendments to these
rules.
Further, the Commission proposed various amendments to Rules 21F-10
and 21F-11 so that these rules conform to the changes that are being
made to the Multiple-Recovery Rule and Rule 21F-6. The Commission did
not receive comments specifically addressing these minor modifications
and is adopting them for the reasons explained in the proposing
release.\59\
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\59\ 87 FR 9280, 9284 n.24, 9290 n.57 (explaining conforming
edits that are being made to Rules 21F-10 and 21F-11).
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III. Effective Date and Other Matters
The Commission received no comments on the proposed effective date.
Accordingly, as proposed, the amended rules will become effective 30
days after publication in the Federal Register. Further, the amendments
shall apply to any award application pending as of the effective date
of the rules, and to all future-filed award applications.
If any of the provisions of these amendments, or the application of
these provisions to any person or circumstance, is held to be invalid,
such invalidity shall not affect other provisions or application of
such provisions to other persons or circumstances that can be given
effect without the invalid provision or application.
[[Page 54147]]
Pursuant to the Congressional Review Act,\60\ the Office of
Information and Regulatory Affairs has designated these amendments as
not a ``major rule,'' as defined by 5 U.S.C. 804(2).
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\60\ 5 U.S.C. 801 et seq.
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Lastly, the final amendments do not impose any new ``collections of
information'' within the meaning of the Paperwork Reduction Act of
1995,\61\ nor do they create any new filing, reporting, recordkeeping,
or disclosure requirements.
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\61\ 44 U.S.C. 3501 et seq.
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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) \62\ 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 \63\ 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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\62\ 15 U.S.C. 78w(a)(2).
\63\ 15 U.S.C. 78c(f).
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This economic analysis concerns the final amendments to Exchange
Act Rule 21F-3 and Rule 21F-6. As discussed above, the final amendments
to Rule 21F-3(b)(3) 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. In addition, the final amendments allow
awards for related actions when the alternative program has a
discretionary structure, or when the maximum award the Commission could
potentially pay on the non-SEC action could not exceed $5 million. The
final amendment to Rule 21F-6 eliminates the Commission's discretion to
consider the dollar amounts to reduce an award. Although the impact of
the final 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 increase 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 final rules could affect our enforcement program by
altering whistleblowing incentives. Similarly, we are unable to
quantify any costs (or benefit) to the IPF \64\ associated with the
Comparability Approach or the alternative approaches discussed above
for amending Rule 21F-(b)(3). Therefore, the discussion of economic
effects of the final amendments is qualitative in nature.
---------------------------------------------------------------------------
\64\ See supra note 41 (discussing the IPF).
---------------------------------------------------------------------------
We received several comments in response to the proposed rulemaking
that suggest additional alternatives as well as comments that discuss
the economic consequences of the rule changes that are being adopted.
We respond to those comments below.
A. Economic Baseline
In our examination of the potential economic effects of the final
amendments, we have employed as a baseline the set of rules that
implement the SEC's whistleblower program as amended in September
2020.\65\ 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
difficult to uncover. The program has received a high number of
submissions from whistleblowers and it has also produced substantial
awards.\66\ Both the number of submissions and the number and dollar
amount of awards per year have increased considerably since the program
was initiated.\67\
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\65\ Earlier this year, the Commission issued a statement
identifying procedures that could be used by the 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.
\66\ 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.
\67\ 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 (Nov. 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>.
SEC Whistleblower Program Annual Award Activity
------------------------------------------------------------------------
Total awards Number of
Year (million) recipients
------------------------------------------------------------------------
2021.................................... $564 108
2020.................................... 175 39
2019.................................... 60 8
------------------------------------------------------------------------
Whistleblower programs, including the SEC's whistleblower program,
have been studied by economists who report findings consistent with
award programs being effective at contributing to the discovery of
violations.\68\ In addition, 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.'' \69\ Further, published research articles and
current working papers report that the SEC's whistleblower program
deters aggressive (i.e., potentially misleading) financial reporting
\70\ and insider trading.\71\ We have received comments that support
the conclusion that the SEC's whistleblower program is valuable and
effective.\72\
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\68\ Andrew C. Call, et al., Whistleblowers and Outcomes of
Financial Misrepresentation Enforcement Actions, 56 J. Acct. Res.
123, 126 (2018) (``Our collective findings are consistent with
whistleblower involvement being associated with more rapid discovery
of financial misconduct.''). See also 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.'').
\69\ Call, et al., supra note 68, at 126.
\70\ See Philip G. Berger & Heemin Lee, Did the Dodd-Frank
Whistleblower Provision Deter Accounting Fraud?, 60 J. ACCT. RES.
1337, 1359 (2022) available at <a href="https://onlinelibrary.wiley.com/doi/10.1111/1475-679X.12421">https://onlinelibrary.wiley.com/doi/10.1111/1475-679X.12421</a> (``for firms not exposed to a general
[state] F[alse] C[laims] A[ct] before the Dodd-Frank whistleblower
law, the new law lowers the probability of fraud by 12%-22% relative
to firms already exposed.''); see also Christine Weidman & Chummei
Zhu, Do the SEC Whistleblower Provisions of Dodd Frank Deter
Aggressive Financial Reporting (Feb. 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>; Jaron H. Wilde, The Deterrent Effect
of Employee Whistleblowing on Firms' Financial Misreporting and Tax
Aggressiveness, 92 ACCT. REV. 247 (2017).
\71\ 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>.
\72\ See, e.g., Taxpayers Against Fraud (Apr. 11, 2022) (``The
success of the Whistleblower Program over the past decade clearly
demonstrates the benefits to investors and the public at large when
major frauds are detected, deterred and remedied as early as
possible[.]''); id. (``The SEC's Whistleblower Program is developing
into one of the most successful public-private partnerships in
American history''); Better Markets (Apr. 11, 2022) (``[T]he [SEC's
Whistleblower] program has been an enormous success.''). One
commenter stated that ``the benefits obtained by the public and
investors based on the deterrent effect of whistleblower laws are
massive,'' and cited additional sources to support this conclusion.
Kohn, Kohn, & Colapinto (Apr. 8, 2022).
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[[Page 54148]]
B. Final Rules
1. Final Rule 21F-3(b)(3)
The rule amendments may affect SEC whistleblower awards in cases
where there is a potential related action that could be covered by
another whistleblower program. As described above, the Commission is
adopting the Comparability Approach, which authorizes 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.\73\ The Comparability Approach will 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 contrast, would have allowed the
Commission to make an award irrespective of the existence of another
program and would have allowed the whistleblower to decide whether to
accept the Commission's award or the other program's award. While the
two approaches are structured differently, both may increase the total
dollar award amount for a whistleblower compared to the baseline. Thus
both options could increase the incentives for whistleblowers.\74\
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\73\ 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.
\74\ We considered comments that support the conclusion that the
Comparability Approach and the Whistleblower's Choice Option would
increase incentives for whistleblowers. See, e.g., Andres Rodriguez
(Apr. 3, 2022) (stating ``With the proposed amendment to rule 21F-
3(b)(3), the Securities and Exchange Commission can further the
maximization of whistleblower tips by means of providing monetary
awards.''); Anonymous (Mar. 21, 2022) (``This will Induce [sic] and
Incentivize [sic] those with a moral compass to come forward more
often.'').
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The Whistleblower's Choice Option might have had a slightly
different incentive effect, since a comparison would have been made
between realizable award amounts rather than analysis of award
structures.\75\ To the extent that a whistleblower prefers to exercise
discretion over the selection of awards for the same related action,
the whistleblower might have preferred the Whistleblower's Choice
Option because the whistleblower would have had an opportunity to make
a decision in every instance where another award program might have
applied. In contrast, the Comparability Approach does not offer the
whistleblower the opportunity to exercise discretion. Feedback from
some commenters indicates that whistleblowers may prefer to exercise
such discretion.\76\ As discussed above, however, the Whistleblower's
Choice Approach could weaken the incentives for whistleblowers, since
it might add significant delay to the processing of applications and/or
payment of awards.\77\
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\75\ In theory, the Whistleblower's Choice Option could have
resulted in larger awards 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 have received a larger amount under the
Whistleblower's Choice Option than under the Comparability Approach.
\76\ See supra notes 21-22 and related discussion.
\77\ See supra note 38 and accompanying discussion.
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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, we expect that they will increase Commission
enforcement activity and deter wrongdoing.\78\ The effects of the rule
changes are expected to be small, due to the limited circumstances
under which they will apply, and because there are many factors,
including non-pecuniary incentives, that motivate whistleblowers.\79\
If this amendment had been operative during the period from July 21,
2010, (when the program was created) to the present, staff review of
award data indicates that this amendment would have resulted in an
additional total payout from the IPF of less than $10.5 million.
Although the rule amendments would not have substantially increased the
total payout in prior related-action awards, the economic literature
leads us to believe that changes such as these that increase
whistleblowing incentives should have a positive effect on the
frequency of whistleblowing activity.\80\
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\78\ We have received letters from commenters that support this
expectation, see, e.g., National Whistleblower Center (Apr. 7, 2022)
(``High rewards increase the likelihood that more whistleblowers
will come forward to the SEC with their information.'').
\79\ The 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.
\80\ 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). See also Kohn, Kohn, & Colapinto
(Apr. 8, 2022) (citing congressional testimony as well as other
sources that indicate incentive changes have an effect on
whistleblower participation).
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Because these amendments may increase the amounts paid to
whistleblowers under certain circumstances, there may be costs
associated with the final rule amendments. One possibility is that the
IPF will be depleted temporarily.\81\ For example, assume the DOJ
collected $1.5 billion on a related action. If there were a meritorious
whistleblower, then even a mid-range 20 percent award would require the
Commission to pay the whistleblower $300 million, an amount that could
temporarily exhaust the IPF.\82\ An award that exhausted the IPF could
produce additional effects, depending on the size of the shortfall and
the SEC whistleblower awards that would otherwise be eligible for
issuance and payment during the shortfall period.\83\
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\81\ 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.
\82\ 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 IPF 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>.
\83\ See also Exchange Act Section 21F(c)(1)(B)(ii).
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In addition, we expect that these amendments will cause a small
increase in the administrative costs for the SEC's whistleblower
program. For example, the final adopted amendments will require the
Commission to compare whistleblower programs based on the expected
award amounts from those programs. But these costs will 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 have
been expected to increase the administrative costs relative to the
baseline more than the Comparability Approach because it would have
[[Page 54149]]
required the Commission to determine whether an award should have been
granted in each case where there is a related action and a separate
whistleblower program.\84\ As described above, commenters have provided
mixed feedback regarding the relative increase in administrative costs
for the Whistleblower's Choice Option as compared to the Comparability
Approach.\85\
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\84\ 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).
\85\ As discussed above, one commenter indicated that the
administrative burdens associated with the Comparability Approach
would be greater than those of the Whistleblower's Choice Option,
supra note 10, but others indicated that the Comparability Approach
would have low administrative burdens, supra note 11.
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2. Final Rule 21F-6
The change to Rule 21F-6 eliminates the Commission's discretionary
authority to consider dollar amounts in reducing awards while retaining
the Commission's discretionary authority to consider dollar amounts to
increase awards. The 2020 amendments that clarified that the Commission
could 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 may have diminished a whistleblower's willingness to come
forward, eliminating this discretionary authority reduces uncertainty
and thus potentially encourages more whistleblowing.\86\ But we cannot
determine with any reasonable degree of certainty if the revisions to
Rule 21F-6 will affect a whistleblower's willingness to report a
potential securities law violation.\87\ To the extent that the
Commission would have exercised the discretion to lower award amounts,
amended Rule 21F-6 will increase program costs to the IPF by any such
amounts.\88\
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\86\ See Taxpayers Against Fraud (Apr. 11, 2022) (stating that
``in our experience representing whistleblowers, uncertainty and
ambiguity in how the program operates can present potentially
significant obstacles to individuals who are considering reporting
wrongdoing'').
\87\ As noted above, commenters have expressed support for the
proposed changes to Rule 21F-6. See supra notes 57-58 and related
discussion, indicating that larger awards generate important
incentives.
\88\ Similar to the amendments to Rule 21F-3(b)(3), to the
extent that program costs increase as a result of the amendments to
Rule 21F-6, there will be an increase in the possibility that the
IPF is temporarily 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 have been eligible for issuance and payment during
the shortfall period.
---------------------------------------------------------------------------
C. Additional Alternatives
As discussed above, the Offset Approach and the Topping-Off
Approach are alternatives that could also have increased whistleblower
award incentives. For example, under certain circumstances, the Offset
Approach could have produced 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 could have resulted in smaller
changes in the award amounts.\89\
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\89\ As described above, the Topping-Off Approach would not have
allowed 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 alternative approaches would
likely have increased the Commission's award-processing time, because
the Commission's final award-amount determinations would have been
dependent on the completion and resolution of the award process by the
entity or authority administering the other award program.\90\
Additional delays may adversely affect whistleblower incentives.\91\ As
a result, despite the generally positive expected impact on
whistleblower incentives from the possibility for increased award
amounts, the net impact on whistleblower incentives from the Offset
Approach and the Topping-Off Approach would have depended on the
relative impacts of potential increased awards and potential increased
delays.\92\
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\90\ Commenters suggested modifications to the Offset Approach
to address this concern. See Taxpayers Against Fraud (Apr. 11, 2022)
(``The only issue relates to timing--if SEC makes its award first,
the whistleblower forfeits an award from any other program; if the
other regulator pays first, the SEC offsets whatever amount the
whistleblower receives with whatever amount he or she received from
other programs.''); Kohn, Kohn & Colapinto (Apr. 8, 2022). But as
discussed in Section II.A.3, the Commission would be required to
withhold any payment to avoid the risk of overpaying.
\91\ Some commenters have expressed concerns about award-
processing delays. See, e.g., Talia Finamore (Apr. 3, 2022) (``My
only worry would be how much more time the Commission would have to
put into processing applications.'').
\92\ As described above, we have considered several additional
alternatives suggested by commenters. For example, one commenter
suggested that the $5 million threshold in the Comparability
Approach should be raised to $20 million. See supra note 15.
---------------------------------------------------------------------------
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
final 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 final 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 final 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.\93\
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\93\ See Adopting Release, 76 FR 34362.
---------------------------------------------------------------------------
V. Regulatory Flexibility Act
Section 604(a) of the Regulatory Flexibility Act \94\ requires the
Commission to undertake a final regulatory flexibility analysis of
rules it is adopting unless the Commission certifies that the rules
would not have a significant economic impact on a substantial number of
small entities.\95\ The proposing release included a request for public
comment on the Commission's preliminary regulatory-flexibility analysis
but no such comments were received.
---------------------------------------------------------------------------
\94\ 5 U.S.C. 603(a).
\95\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------
Under Section 601(6) of Title 5 of the United States Code, ``small
authority'' means ``small business,'' ``small organization,'' and
``small governmental jurisdiction.'' \96\ The definition of ``small
authority'' does not include individuals. As explained in the proposing
release, the rules apply only to an individual, or individuals acting
jointly, who provide
[[Page 54150]]
information to the Commission relating to the violation of the
securities laws. Companies and other entities are not eligible to
participate in the whistleblower program as whistleblowers.\97\
Consequently, the persons that will be subject to the amended rules are
not ``small entities'' for purposes of the Regulatory Flexibility Act.
---------------------------------------------------------------------------
\96\ See 5 U.S.C. 601(3) through(5) (defining ``small
business,'' ``small organization,'' and ``small governmental
jurisdiction'').
\97\ See generally Exchange Act Section 21F(a)(6) (defining
``whistleblower''); Rule 21F-2(a)(2) (providing that ``[a]
whistleblower must be an individual'' and a ``company or other
entity is not eligible to be a whistleblower'').
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For the reasons stated above, the Commission certifies, pursuant to
Section 605(b) of Title 5 of the U.S. Code, that the rules would not
have a significant economic impact on a substantial number of small
entities.\98\
---------------------------------------------------------------------------
\98\ The final amendments do not impose any new ``collections of
information'' within the meaning of the Paperwork Reduction Act of
1995 [44 U.S.C. 3501 et seq.], nor do they create any new filing,
reporting, recordkeeping, or disclosure requirements.
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VI. Statutory Basis
The Commission is adopting the rule amendments contained in this
document under the rulemaking authority provided 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 Amendments
For the reasons set out in the preamble, title 17, chapter II of
the Code of Federal Regulations is amended to read 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 Public Law 111-203, 922(a),
124 Stat. 1841 (2010).
* * * * *
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 action will be deemed eligible
to qualify as a potential related-action only if either:
(A) The Commission finds that the maximum total award that could
potentially be paid by the Commission based on the monetary sanctions
imposed would not exceed $5 million; or
(B) The Commission finds (based on the facts and circumstances of
the action) that the Commission's whistleblower award 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 re-adjudicate 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);
(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); and
(4) The authority or entity administering the program may not in
its discretion deny an award if a whistleblower 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)(2) 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) must
demonstrate that the whistleblower has complied with the terms and
conditions of this section regarding an irrevocable waiver. This shall
include taking all
[[Page 54151]]
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 must 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.
0
3. 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
4. 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 when applying the factors
specified in paragraphs (a) and (b) of this section.
0
5. 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
6. 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 and standards 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
7. 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(b)).
* * * * *
(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 the award factors and standards 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
[[Page 54152]]
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: August 26, 2022.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022-18842 Filed 9-1-22; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on September 2, 2022.
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