the likelihood of wrongdoing.' '' \263\ Conversely, where a qui tam
relator ``supplie[s] the missing link between the public information
and the alleged fraud,'' and thereby `` `bridge[s] the gap by [his] own
efforts and experience,' the public disclosure bar does not apply.''
\264\ In this way, qui tam awards are reserved for relators who ``
`contributed significant independent information' about a possible
fraud.'' \265\
---------------------------------------------------------------------------

    \262\ See, e.g., United States ex rel. Oliver v. Philip Morris
USA Inc., 826 F.3d 466, 471-73 (D.C. Cir. 2016), reh. en banc
denied, 2016 U.S. App. Lexis 17161 (D.C. Cir. 2016); Amphastar
Pharmaceuticals Inc. v. Aventis Pharma SA, 856 F.3d 696, 703 (9th
Cir. 2017); Cause of Action v. Chicago Transit Authority, 815 F.3d
267, 278 (7th Cir. 2016), cert. denied, 137 S. Ct. 205 (2016).
    \263\ Phillip Morris USA, 826 F.3d at 472; see also United
States ex rel. Solis v. Millennium Pharms., Inc., 885 F.3d 623, 626
(9th Cir. 2018) (``A prior disclosure and an allegation may be
substantially similar when the prior public disclosure put the
government `on notice to investigate the fraud before the relator
filed his complaint.''').
    \264\ United States ex rel. Shea v. Cellco Partnership, 863 F.3d
923, 935 (DC Cir. 2017).
    \265\ Id. at 933 (quoting United States ex rel. Springfield
Terminal Railway v. Quinn, 14 F.3d 645, 653 (D.C. Cir. 1994)).
---------------------------------------------------------------------------

    Relying in part on the False Claims Act framework to assist us in
formulating a proposed standard for interpreting Exchange Act Rule 21F-
4(b)(3), we believe the following is appropriate: A whistleblower's
examination and evaluation of publicly available information does not
constitute ``analysis'' if the facts disclosed in the public materials
on which the whistleblower relies and in other publicly available
information are sufficient to raise an inference of the possible
violations alleged in the whistleblower's tip. This is because, where
the violations that the whistleblower alleges can be inferred by the
Commission from the face of public materials, those violations are not
``reveal[ed]'' to the Commission by the whistleblower's tip or any
purported analysis that the whistleblower has submitted. Rather, in
order for a whistleblower to be credited with providing ``independent
analysis,'' the whistleblower's examination and evaluation should
contribute ``significant independent information'' that ``bridges the
gap'' between the publicly available information and the possible
securities violations.
    As noted, ``significant independent information'' that ``bridges
the gap'' in revealing violations may be found in the application of
technical expertise, but this is not required.\266\ However, we have
received tips in which a whistleblower merely offers observations drawn
from publicly available information. In these cases, the whistleblower
typically directs the staff to publicly available information and
states that the information itself suggests a fraud or other
violations. Examples would be where the whistleblower points to common
hallmarks of fraud on the face of the public materials (e.g.,
impossibly high, guaranteed investment returns or extravagant claims in
press releases) or to public discourse (e.g., discussions on a public
message board) in which investors or others are alleging a fraudulent
scheme. Further, it would not matter whether the individual relied on
only one source (e.g., a single website) to collect the publicly
available information that demonstrates the

hallmarks of the fraud, or whether the individual relied on a multitude
of different publicly available sources to collect the information.
These tips generally would not qualify as ``independent analysis''
under our interpretation because the whistleblower's essential
contribution is merely that he or she directed the staff to publicly
available information that gives rise to an inference of violations;
the whistleblower's tip has not ``bridged the gap'' between public
information that does not itself provide a basis for inferring a
possible violation and a conclusion that a violation may have occurred.
Further, we believe that this same result would generally obtain
whether the whistleblower directs the staff to a single piece of
publicly available information or the whistleblower aggregates
information from multiple different sources.\267\ If the violations can
be inferred by the Commission from the available and/or assembled
publicly available information, without more, then the whistleblower
has not contributed significant independent information that reveals
the violations.\268\
---------------------------------------------------------------------------

    \266\ For example, non-experts may configure publicly available
information in a non-obvious way that reveals patterns indicating
possible violations that would not be otherwise inferable from the
public information or may engage in highly probative calculations or
some other meaningful exercise with the information that may
demonstrate the possibility of securities violations.
    \267\ As noted above, we explained in the adopting release for
our whistleblower rules that a whistleblower would need to do more
than point us to disparate public information in order to provide
``independent analysis'' within the meaning of our rule. 76 FR
34300, 34305, 34312/3.
    \268\ The Commission, in its adjudicatory capacity, routinely
draws reasonable inferences from facts in the record. See, e.g., SEC
Rule of Practice 250, 17 CFR 201.250 (drawing reasonable inferences
from factual allegations in deciding dispositive motions). ``Drawing
inferences from direct and circumstantial evidence is a routine and
necessary task of any factfinder. `The very essence of [the
factfinder's] function is to select from among conflicting
inferences and conclusions that which it considers most reasonable.'
'' Siewe v. Gonzalez, 480 F.3d 160, 166 (2d Cir. 2007) (quoting
Tennant v. Peoria and Pekin Union Railway, 321 U.S. 29 (1944)).
---------------------------------------------------------------------------

    Thus, in each case the Commission should consider whether publicly
available information (both that supplied by the whistleblower and
other public sources) was sufficient to give rise to an inference of
the violations alleged by the whistleblower, or whether the
whistleblower's examination and evaluation of public source material
revealed new, significant, and independent information that ``bridged
the gap'' for the staff in demonstrating the possibility of violations.
Moreover, under our rules the whistleblower will be notified of any
preliminary determination that his or her tip did not constitute
``independent analysis,'' and will have an opportunity to contest that
determination in a written submission to the Commission.\269\
---------------------------------------------------------------------------

    \269\ See 17 CFR 240.21F-10(e).
---------------------------------------------------------------------------

C. Leads to Successful Enforcement

    Assuming that a whistleblower's submission meets the threshold
requirement that it constitute ``independent analysis,'' for the
whistleblower to be eligible for an award the ``information that . . .
is derived from the . . . [whistleblower's] analysis'' must also lead
to a successful enforcement action. This determination turns ``on an
evaluation of whether the analysis is of such high quality that it
either causes the staff to open an investigation, or significantly
contributes to a successful enforcement action, as set forth in Rule
21F-4(c).'' \270\ Further, if the staff looks to other information as
well in determining to open an investigation, the Commission will only
find that the independent analysis ``led to'' the success of the
enforcement action if the Commission determines that the
whistleblower's analysis was a ``principal motivating factor'' in the
staff's decision to open the investigation.\271\
---------------------------------------------------------------------------

    \270\ 76 FR 34300, 34312/3. This would require that the
whistleblower's analysis made a substantial and important
contribution to the action. See Whistleblower Award Proceeding 2016-
9, Release No. 34-77833 (May 13, 2016).
    \271\ 75 FR 70488, 70497/2.
---------------------------------------------------------------------------

    Thus, even an otherwise compelling analysis may not satisfy the
``leads to'' requirement depending on the nature of other information
already in the staff's possession. For example, if the staff has
already obtained testimony from insiders describing the facts of a
violation, a subsequent whistleblower submission that demonstrates the
possibility of the violation through independent analysis of publicly
available information would not likely qualify for an award because,
against the backdrop of the facts already known to the staff, the
whistleblower's analysis would not significantly contribute to the
staff's investigation.
Request for Comment
    30. We seek comment on the interpretation of ``independent
analysis'' in light of the background set forth above. Are there
additional considerations that the Commission should factor into the
interpretation? For example, should the interpretation address more
explicitly cases in which an individual selects, compiles, and presents
publicly available information in a new way for the staff? If so, how?
    31. Should any aspect of the interpretation be codified in rule
text? For example, should the Commission adopt rule text that would
make clear that for a whistleblower to be credited with providing
``original information'' through ``independent analysis,'' the
whistleblower's examination and evaluation should contribute
``significant independent information'' that ``bridges the gap''
between the publicly available information and the possible securities
violations?

IV. Request for Comment Regarding a Potential Discretionary Award
Mechanism for Commission Actions That Do Not Qualify as Covered
Actions, Involve Only a De Minimis Collection of Monetary Sanctions, or
Are Based on Publicly Available Information

    Beyond the specific rule proposals and interpretations expressly
advanced above, we invite public comment on whether the Commission
could at a future point propose a rule that would permit the Commission
on a discretionary basis to pay awards to whistleblowers in Commission
enforcement actions that do not result in an order for monetary
sanctions that exceeds $1,000,000 \272\ or enforcement actions where
the whistleblower's tip consisted of publicly available
information.\273\ Similarly, do we have the statutory authority to
propose and adopt a rule that would permit the Commission on a
discretionary basis to make award payments that are not tied to the
monetary payments collected where a meritorious whistleblower has
received an award determination in a covered action, but the ordered
monetary sanctions cannot be collected or the amount collected would
result in a de minimis payment? Alternatively, would a legislative
change be required for the Commission to establish the type of
discretionary award mechanisms described in this section? Moreover,
whether by rule or legislative change, would such discretion to make
awards in these instances be in the public interest? Please explain the
grounds for your views.
---------------------------------------------------------------------------

    \272\ For example, could we propose and adopt a rule that would
authorize the Commission on a discretionary basis to utilize the IPF
to pay awards to whistleblowers who make significant contributions
in Commission Enforcement actions that do not qualify as covered
actions for which we can currently pay awards?
    \273\ These would be situations where, under the existing
statute and our current rules, the information provided by the
whistleblower would not qualify as information that was derived from
the whistleblower's ``independent knowledge'' or independent
analysis,'' see Exchange Act Rule 21F-4(b)(2) & (3), 17 CFR 240.21F-
4(b)(2) & (3), and thus would not be ``original information'' upon
which the Commission could base an award, see Exchange Act Rule 21F-
4(b)(1)(i), 17 CFR 240.21F-4(b)(1)(i).
---------------------------------------------------------------------------

V. General Request for Public Comment

    We request and encourage any interested person to submit comments

on any aspect of the proposed rule amendments, interpretations, or
other items specified above. With respect to any comments on the
economic analysis contained below, we note that such comments would be
of greatest assistance to our rulemaking initiative if accompanied by
supporting data and analysis of the issues addressed therein and by
alternatives to our proposals where appropriate.
    Finally, other than the items specifically identified in this
release, persons wishing to comment are expressly advised that the
Commission is not proposing any other changes to the whistleblower
program rules (i.e., Exchange Act Rules 21F-1 through 21F-17), nor is
the Commission otherwise reopening any of those rules for comment.

VI. Paperwork Reduction Act

A. Background

    The proposed amendments would affect certain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\274\ The Commission is submitting the
proposal to the Office of Management and Budget (``OMB'') for review in
accordance with the PRA.\275\ The titles for the affected collections
of information are:
    ``Electronic Data Base Collection System--TCR'' (OMB Control No.
3235-0672); and ``Form TCR'' and
    ``Form WB-APP'' (OMB Control No. 3235-0686).
---------------------------------------------------------------------------

    \274\ 44 U.S.C. 3501 et seq.
    \275\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    Currently an applicant seeking to submit information to the
Commission in order to qualify as a whistleblower must submit this
information by using one of two methods: (1) By providing the
information through an online portal on the Commission's website that
is designed for receiving electronic submissions, or (2) by submitting
the paper Form TCR that was initially adopted by the Commission as part
of the original whistleblower rulemaking in 2011.\276\ In addition to
the paper Form TCR, the Commission also adopted a paper Form WB-APP
when it adopted the existing rules for the whistleblower program.
Individuals seeking awards must make their award request using Form WB-
APP. The hours and costs associated with preparing and submitting
information through the online portal and affected forms constitute
reporting and cost burdens imposed by each collection of information.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information requirement unless it displays
a currently valid OMB control number.
---------------------------------------------------------------------------

    \276\ See Exchange Act Rule 21F-9, 17 CFR 240-21F-9(a).
---------------------------------------------------------------------------

B. Summary of the Proposed Amendments

    As described in more detail above, to provide the Commission with
the ability to make timely corresponding adjustments to the paper Form
TCR when it determines to modify the online portal, the Commission
proposes to modify Exchange Act Rule 21F-8 \277\ by adding a new
paragraph (d)(1) providing that the Commission will periodically
designate a Form TCR (Tip, Complaint, or Referral) that individuals
seeking be eligible for an award through the process identified in
Sec.  240.21F-9(a)(2) shall use. In addition, to provide the Commission
with greater administrative flexibility to modify Form WB-APP, the
Commission proposes to modify Exchange Act Rule 21F-8 by adding a new
paragraph (d)(2) providing that the Commission will also periodically
designate a Form WB-APP for use by individuals seeking to apply for an
award under either Sec.  240.21F-10 or Sec.  240.21F-11.
---------------------------------------------------------------------------

    \277\ 17 CFR 240.21F-8.
---------------------------------------------------------------------------

    In connection with these proposed amendments, we propose to
reorganize the OMB control numbers and associated burden estimates for
the collections of information contained in the Commission's online
portal, Form TCR and Form WB-APP. Although the online portal and Form
TCR collect substantially the same type of information--information
alleging potential securities law violations--they currently have
separate OMB control numbers. In addition, although Form TCR and Form
WB-APP collect different types of information, the latter of which
collects information from individuals applying for whistleblower
awards, these collections of information are currently gathered
pursuant to the same OMB control number.
    Pursuant to the proposed reorganization, both the online portal and
Form TCR would fall under the same OMB control number (No. 3235-0672).
The title for this collection of information and the associated burden
estimate would be adjusted accordingly to reflect the submission of
relevant information through both the online portal and the paper Form
TCR (see Table 2 of section VI(C)). Form WB-APP would this have its own
OMB control number (No. 3235-0686) and the collection of information
would be retitled accordingly (see Table 2 of section VI(C)).

C. Burden and Cost Estimates Related to the Proposed Amendments

    We do not anticipate that the proposed amendments would increase
the burden or cost to individuals preparing and submitting the required
information through the online portal and affected forms. Although we
intend to make certain modifications to Form TCR so that the
information elicited by the form is consistent with the information
collected through the online portal, we do not believe that these
conforming modifications will increase appreciably the burden for
individuals completing the form.
    We estimate that the combined burden associated with both paper
Form TCR and the online complaint form is 9,050 hours annually. We
anticipate that the burdens imposed by the online complaint form will
vary depending on the complexity of the alleged violations that are the
subject of the tip and the amount of information possessed by the
individual submitting the tip. We estimate that it takes a complainant,
on average, 30 minutes to complete the online complaint form. Based on
an estimate of 16,000 annual responses, we estimate that the annual PRA
burden for the online complaint form is 8,000 hours. Although the
completion time will depend on the complexity of the alleged violation
and the amount of information the whistleblower possesses in support of
the allegations, we estimate that it takes a whistleblower, on average,
one and one-half hours to complete and submit Form TCR. We estimate
that it may take individuals more time to complete Form TCR than the
online complaint form because a person will have to hand write in the
required information and spend time mailing and faxing the form to the
Commission. Based on the receipt of an average of approximately 700
annual Form TCR submissions for the past three fiscal years, the
Commission estimates that the annual reporting burden of Form TCR is
1,050 hours.
    We estimate that it takes a whistleblower, on average, one hour to
complete Form WB-APP, though the completion time depends largely on the
complexity of the alleged violation and the amount of information the
whistleblower possesses in support of his or her application for an
award. Based on the receipt of an average of approximately 110 annual
properly filed Form WB-APP submissions for the past

six fiscal years,\278\ the Commission estimates that the annual
reporting burden of Form WB-APP is 110 hours.
---------------------------------------------------------------------------

    \278\ This figure does not include Form WB-APP submissions which
were facially deficient, subsequently withdrawn or submitted by
individuals who have been barred by the Commission from
participation in the whistleblower program.
---------------------------------------------------------------------------

    We do not believe that the proposed amendments would increase the
professional costs associated with preparing and submitting the
affected forms. Under the whistleblower rules, an anonymous
whistleblower who is seeking an award is required, and a whistleblower
whose identity is known may elect, to retain counsel to represent the
whistleblower in the whistleblower program. We expect that in most
instances the whistleblower's counsel will complete, or assist in the
completion, of some or all of the required forms on behalf of the
whistleblower. However, we expect that in the vast majority of cases in
which a whistleblower is represented by counsel, the whistleblower will
enter into a contingency fee arrangement with counsel, providing that
counsel be paid for the representation through a fixed percentage of
any recovery by the whistleblower under the program. Thus, we expect
most whistleblowers will not incur any direct out of pocket expenses
for attorneys' fees for the completion of the affected forms.
    We expect that a very small number of whistleblowers (no more than
5%) enter into hourly fee arrangements with counsel.\279\ In those
cases, a whistleblower will incur direct expenses for attorneys' fees
for the completion of the required forms. To estimate those
expenses,\280\ we make the following assumptions:
---------------------------------------------------------------------------

    \279\ This estimate is based, in part, on the Commission's
belief that most whistleblowers likely will not retain counsel on an
hourly basis to assist them in preparing the forms.
    \280\ Individuals submitting their information in writing who
are not seeking to be eligible for the Commission's whistleblower
award program are not required to retain an attorney, even if they
choose to submit their information anonymously, and thus are not
required to use either the Form TCR or the Form WB-APP. As such, for
purposes of calculating the estimated costs of the forms, we have
only included the potential costs associated with completing and
submitting the Form TCR and Form WB-APP.
---------------------------------------------------------------------------

    (i) The Commission will continue to receive on average
approximately 700 Forms TCR and 110 Forms WB-APP annually;
    (ii) Individuals will pay hourly fees to counsel for the submission
of approximately 35 Forms TCR and 6 Forms WB-APP annually; \281\
---------------------------------------------------------------------------

    \281\ These amounts are based on the assumption, as noted above,
that no more than 5% of all whistleblowers will be represented by
counsel pursuant to an hourly fee arrangement.
---------------------------------------------------------------------------

    (iii) Counsel retained by whistleblowers pursuant to an hourly fee
arrangement will charge on average $400 per hour; \282\ and
---------------------------------------------------------------------------

    \282\ The Commission uses this hourly billing rate for purposes
of estimating the professional costs of other rules, and we believe
it is an appropriate billing rate to use in this context,
recognizing that some attorneys representing whistleblowers may not
be securities lawyers and may charge different average hourly rates.
---------------------------------------------------------------------------

    (iv) Counsel will bill on average: (i) Three hours to complete a
Form TCR, and (ii) two hours to complete a Form WB-APP.\283\
---------------------------------------------------------------------------

    \283\ The Commission expects that counsel will likely charge a
whistleblower for additional time required to gather from the
whistleblower or other sources relevant information needed to
complete Forms TCR and WB-APP. Accordingly, we estimate that, on
average, counsel will bill a whistleblower three hours for the
completion of Form TCR and two hours for completion of Form WB-APP
(even though we estimate that a whistleblower acting without counsel
will be able to complete the Form TCR in 1.5 hours and Form WB-APP
in 1 hour).
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate that each year whistleblowers
will incur the following total amounts of attorneys' fees in connection
with completing Forms TCR and WB-APP: (i) $42,000 \284\ for the
reporting burden of Form TCR; and (ii) $4,800 \285\ for the reporting
burden of Form WB-APP.
---------------------------------------------------------------------------

    \284\ 35 x ($400 x 3) = $42,000.
    \285\ 6 x ($400 x 2) = $4,800.
---------------------------------------------------------------------------

    The tables below summarize the burden and cost estimates associated
with the online portal and affected forms both currently and after the
proposed reorganization of the relevant control numbers:

                               Table 1 of Section VI(C)--Current Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                    OMB control
                              Title                                     No.        Burden hours        Costs
----------------------------------------------------------------------------------------------------------------
``Electronic Data Base Collection System--TCR''.................       3235-0672           8,000              $0
``Form TCR'' and ``Form WB-APP''................................       3235-0686           1,160          46,800
----------------------------------------------------------------------------------------------------------------

              Table 2 of Section VI(C)--Revised Burden Estimates Under the Proposed Reorganization
----------------------------------------------------------------------------------------------------------------
                                                                    OMB control
                              Title                                     No.        Burden hours        Costs
----------------------------------------------------------------------------------------------------------------
``Tips, Complaints and Referrals (TCR)''........................       3235-0672           9,050         $42,000
``Form WB-APP''.................................................       3235-0686             110           4,800
----------------------------------------------------------------------------------------------------------------

D. Mandatory Collection of Information

    A whistleblower is required to complete either a hardcopy Form TCR
or submit his or her information electronically through the online
portal and to complete Form WB-APP to qualify for a whistleblower
award.

E. Confidentiality

    As explained above, the statute provides that the Commission must
maintain the confidentiality of the identity of each whistleblower,
subject to certain exceptions. Section 21F(h)(2) states that, except as
expressly provided the Commission and any officer or employee of the
Commission shall not disclose any information, including information
provided by a whistleblower to the Commission, which could reasonably
be expected to reveal the identity of a whistleblower, except in
accordance with the provisions of section 552a of title 5, United
States Code, unless and until required to be disclosed to a defendant
or respondent in connection with a public proceeding instituted by the
Commission or certain specific entities listed in paragraph (C) of
Section 21F(h)(2).
    Further, as discussed above, we are proposing Rule 21F-2(c) to
require that an individual who is seeking this heightened
confidentiality protection must submit his or her information to the
Commission using the online portal or by completing a hardcopy Form
TCR. If an individual fails to do so, then

under our proposed rule he or she would be ineligible for the
heightened confidentiality protections.
    Section 21F(h)(2) also permits the Commission to share information
received from whistleblowers with certain domestic and foreign
regulatory and law enforcement agencies. However, the statute requires
the domestic entities to maintain such information as confidential, and
requires foreign entities to maintain such information in accordance
with such assurances of confidentiality as the Commission deems
appropriate.
    In addition, Section 21F(d)(2) provides that a whistleblower may
submit information to the Commission anonymously and still be eligible
for an award, so long as the whistleblower is represented by counsel.
However, the statute provides that a whistleblower must disclose his or
her identity prior to receiving payment of an award.

F. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order
to:
     Evaluate whether the proposed collections of information
are necessary for the proper performance of the functions of the
Commission, including whether the information will have practical
utility;
     Evaluate the accuracy of our assumptions and estimates of
the burden of the proposed collection of information;
     Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of
the collection of information on those who respond, including through
the use of automated collection techniques or other forms of
information technology; and
     Evaluate whether the proposed amendments would have any
effects on any other collection of information not previously
identified in this section.
    Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct their comments to the Office of
Management and Budget, Attention: Desk Officer for the U.S. Securities
and Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and send a copy to, Brent J. Fields, Secretary,
U.S. Securities and Exchange Commission, 100 F Street NE, Washington,
DC 20549, with reference to File No. S7-08-17. Requests for materials
submitted to OMB by the Commission with regard to the collection of
information should be in writing, refer to File No. S7-08-17 and be
submitted to the U.S. Securities and Exchange Commission, Office of
FOIA Services, 100 F Street NE, Washington, DC 20549. OMB is required
to make a decision concerning the collection of information between 30
and 60 days after publication of this proposed rule. Consequently, a
comment to OMB is best assured of having its full effect if the OMB
receives it within 30 days of publication.

VII. 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) \286\ of the
Securities Exchange Act of 1934 requires the Commission, in
promulgating rules under the Exchange Act, to consider the impact that
any rule may have on competition and prohibits the Commission from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. Further, Section 3(f) of the Exchange Act \287\ 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.
---------------------------------------------------------------------------

    \286\ 15 U.S.C. 78w(a)(2).
    \287\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The economic analysis in this part focuses on the proposed
amendments to Rule 21F-2, Rule 21F-4(d)(3), Rule 21F-6, Rule 21F-
3(b)(4), Rule 21F-8, newly proposed Exchange Act Rule 21F-18, and the
proposed interpretive guidance. As discussed above, the proposed
amendments to Rule 21F-2 are in response to the Supreme Court's recent
decision in Digital Realty Trust, Inc. v. Somers; \288\ proposed Rule
21F-4(d)(3) would allow awards based on non-prosecution agreements or
deferred prosecution agreements entered into by the DOJ or state
attorneys general, and settlement agreements entered into by the
Commission; proposed Rule 21F-3(b)(4) would eliminate potential double
recovery under the current definition of related action; proposed
amendments to Rule 21F-6 would allow additional considerations for
small and large awards; proposed Rule 21F-8(e) would provide authority
to bar applicants from future award applications in certain limited
situations; proposed Rule 21F-18 would provide a streamlined award
consideration process for certain limited categories of non-meritorious
applications; and the proposed interpretive guidance would help clarify
the meaning of ``independent analysis'' as that term is defined in
Exchange Act Rule 21F-4 and utilized in the definition of ``original
information.'' The other proposed amendments in this release are either
procedural, technical in nature or codify existing practice, and
therefore we do not expect them to significantly impact efficiency,
competition, and capital formation.
---------------------------------------------------------------------------

    \288\ 138 S. Ct. 767 (2018).
---------------------------------------------------------------------------

    Many of the benefits and costs discussed below are difficult to
quantify. For example, although the analysis that follows details the
specific ways in which we expect the proposed rules to affect
whistleblower incentives, we lack the data necessary to estimate the
magnitudes of these effects separately or in the aggregate. Similarly,
we do not know the precise cost--in terms of awards paid out of the
IPF--of defining a non-prosecution agreement or deferred prosecution
agreement entered into by the DOJ or a state attorney general or a
settlement agreement entered into by the Commission as an
``administrative action'' and any money required to be paid thereunder
as a ``monetary sanction.'' Moreover, we do not know the funds that
might be conserved in the IPF by the avoidance of double recoveries for
the same action and the avoidance of large awards that are not
reasonably necessary to achieve the goals of the whistleblower program.
Therefore, while we have attempted to quantify economic impacts where
possible, much of the discussion of economic effects is qualitative in
nature.

A. Economic Baseline

    To examine the potential economic effects of the amendments, we
employ as a baseline the comprehensive set of rules that the Commission
adopted in May 2011 to implement the whistleblower program. The
baseline also includes: The Supreme Court's recent decision in Digital
Realty Trust, Inc. v. Somers; a description of whistleblower programs
administered by other regulatory authorities; and a discussion of the
IPF (including its replenishment mechanism), summary statistics that
describe the distribution of awards paid by the whistleblower program
under the 2011 rules, and estimates of wages and salaries obtained from
a number of surveys.

1. Whistleblower Programs
    In this section, we discuss a non-exhaustive list of the various
federal and state whistleblower programs that are currently
administered by other agencies or authorities and which might be
implicated by the proposed rules.\289\ The CFTC administers its own
whistleblower award program under section 23 of the Commodity Exchange
Act.\290\ Both the SEC and CFTC programs were established by the Dodd-
Frank Act and are substantially identical in their substantive
terms.\291\ As discussed above, since the adoption of our whistleblower
program rules, two states have adopted their own whistleblower award
programs in connection with state securities-law enforcement actions.
In 2011, Utah established a whistleblower-award scheme to provide
rewards of up to thirty percent of the money collected in state
securities-law enforcement actions.\292\ The following year, Indiana
enacted a whistleblower award scheme to provide rewards up to ten
percent of the money collected in a state securities-law enforcement
action.\293\ We are also aware that DOJ might pursue law-enforcement
actions that potentially implicate both the Commission's whistleblower
program and the whistleblower award program that the IRS
administers.\294\ Further, Congress in 2015 established a new motor-
vehicle-safety whistleblower award program that allows employees or
contractors of a motor-vehicle manufacturer, parts supplier, or
dealership who report serious violations of federal vehicle-safety laws
to obtain awards of 10 percent to 30 percent of any monetary sanction
over $1 million that the Federal Government collects based on that
information.\295\
---------------------------------------------------------------------------

    \289\ Although we discuss several federal whistleblower programs
that we believe are more likely to be implicated by the proposed
rules, there are other federal whistleblower programs that are not
discussed but which could potentially be implicated.
    \290\ 7 U.S.C. 26.
    \291\ See Securities Whistleblower Incentives and Protections
Proposing Release, 75 FR at 70490.
    \292\ Utah Code Annotated 61-1-101 et seq.
    \293\ Indiana Code 23-19-7-1 et seq.
    \294\ 26 U.S.C. 7623.
    \295\ 49 U.S.C. 30172 (enacted by Section 24352 of the Fixing
America's Surface Transportation Act of 2015 (FAST Act), Pub. L.
114-94).
---------------------------------------------------------------------------

2. Supreme Court Decision in Digital Realty Trust, Inc. v. Somers
    The Supreme Court recently held in Digital Realty Trust, Inc. v.
Somers,\296\ that Section 21F(h)(1) of the Exchange Act unambiguously
requires that a person report a possible securities law violation to
the Commission in order to qualify for employment retaliation
protection, and that the Commission's rule interpreting the retaliation
protections in Section 21F more broadly was therefore not entitled to
deference.\297\ The Court reasoned that the definition of
``whistleblower'' codified in Section 21F(a)(6) requires such a report
to the Commission as a prerequisite for employment retaliation
protection, and that this definition is ``clear and conclusive.'' \298\
The Court also determined that strict application of the definition's
reporting requirement in the employment anti-retaliation context is
consistent with Congress's core objective of `` `motivat[ing] people
who know of securities law violations to tell the SEC.' '' \299\
---------------------------------------------------------------------------

    \296\ 138 S. Ct. 767 (2018).
    \297\ Id. at 781-82.
    \298\ Id.
    \299\ Id. at 777 (quoting S. Rep. No. 111-176, at 38 (2010)).
---------------------------------------------------------------------------

3. IPF and Awards Issued by the SEC Whistleblower Program
    In Section 21F(g) of the Exchange Act, Congress established the IPF
to provide funding for the payment of whistleblower awards. The IPF has
a permanent indefinite appropriation that is available without further
appropriation or fiscal year limitation for the purpose of funding
awards to whistleblowers (and to fund the Office of Inspector General's
Employee Suggestion Program).\300\
---------------------------------------------------------------------------

    \300\ However, the Commission is required to request and obtain
an annual apportionment from the Office of Management and Budget to
use these funds. See SEC Agency Financial Report for 2017 (Nov. 14,
2017), available at https://www.sec.gov/files/sec-2017-agency-financial-report.pdf.
---------------------------------------------------------------------------

    As of the end of Fiscal Year 2017, the balance of the IPF was
approximately $322 million.\301\ Whenever the reserve in the IPF falls
below $300 million, Section 21F(g)(3) requires the Commission to
replenish the IPF.\302\ In May 2018, the balance of the IPF for the
first time fell below the $300 million threshold that triggers the
statutory replenishment mechanism; \303\ this occurred when the
Commission paid $83 million--its largest payout to date on an
enforcement action--to three individuals.
---------------------------------------------------------------------------

    \301\ See Section II.D, above.
    \302\ See 15 U.S.C. 78u-6(g)(3).
    \303\ For a description of the IPF's statutory replenishment
mechanisms, see Section 21F(g)(3) of the Exchange Act, 15 U.S.C.
78u-6(g)(3).
---------------------------------------------------------------------------

    From August 2012 through April 2018, the Commission's whistleblower
program issued 50 whistleblower awards to 55 individuals (including, as
explained above, individuals who acted as joint whistleblowers).\304\
Table 1 of Section VII(A)(3) reports the frequency distribution of
these awards by award size. Forty-two of these awards were less than $5
million, of which thirty-one awards were less than $2 million. Of the
remaining eight awards, five were at least $5 million but less than $30
million and three exceeded $30 million.\305\ According to the Office of
the Whistleblower, of the 55 individuals who have received awards,
approximately 10 percent are high-ranking corporate executives at
companies of varying sizes and a large majority of these executives
received awards that were under $5 million.
---------------------------------------------------------------------------

    \304\ These totals treat as single awards several cases where
whistleblowers' original information led to multiple covered actions
that were processed together in one award order recognizing the
total contributions of the whistleblower. Similarly, consistent with
the approach proposed above governing cases where we grant an award
for both a Commission enforcement action and a related action by
another agency based on the same information provided by the
whistleblower (see 17 CFR 240.21F-3(b)), we consider covered-action
awards together with their corresponding related-action awards as
single whistleblower awards.
    \305\ One of the three awards that exceeded $30 million was
issued in September 2014 in a Commission action and related actions.
See Order Determining Whistleblower Award Claim, Exchange Act
Release No. 34-73174 (Sept. 22, 2014), available at https://www.sec.gov/rules/other/2014/34-73174.pdf. The other two awards were
issued in March 2018 for $49 and $33 million, respectively, to three
individuals (two of whom were acting as joint whistleblowers). See
Order Determining Whistleblower Award Claim, Exchange Act Release
No. 34-82897 (March 19, 2018), available at, https://www.sec.gov/rules/other/2018/34-82897.pdf. We note that these three awards alone
reduced the balance of the IPF by approximately $112 million.

  Table 1 of Section VII(A)(3)--Frequency Distribution of Whistleblower
                                 Awards
[We use awards issued to whistleblowers by the SEC Whistleblower Program
from August 2012 through April 2018. Number is the number of awards that
 fall within an award size category. Percent is the number of awards in
  an award size category as a fraction of the total number of awards.]
------------------------------------------------------------------------
           Award size category                Number          Percent
------------------------------------------------------------------------
Less than $2 million....................              31              62
At least $2 million but less than $5                  11              22
 million................................

At least $5 million but less than $10                  2               4
 million................................
At least $10 million but less than $15                 1               2
 million................................
At least $15 million but less than $20                 1               2
 million................................
At least $20 million but less than $30                 1               2
 million................................
At least $30 million....................               3               6
                                         -------------------------------
    Total...............................              50             100
------------------------------------------------------------------------

    In addition to summarizing the distribution of awards to
whistleblowers, we also summarize the distribution of awards by
enforcement action. For each enforcement action, we identify all
whistleblowers who receive an award for that enforcement action and sum
up their awards to arrive at the aggregate award for that enforcement
action. Table 2 of section VII(A)(3) indicates that between August 2012
and April 2018, there were 45 enforcement actions for which the
Commission issued whistleblower awards.\306\ Thirty-seven enforcement
actions had awards of less than $5 million, of which twenty-eight
awards were less than $2 million. Of the remaining eight actions, six
had aggregate awards of at least $5 million but less than $30 million
and only two had an aggregate award that exceeded $30 million.
---------------------------------------------------------------------------

    \306\ As noted, we aggregate related actions with their
corresponding Commission actions for purposes of this analysis.

    Table 2 of Section VII(A)(3)--Frequency Distribution of Awards by
                           Enforcement Action
[We use awards issued to whistleblowers by the SEC Whistleblower Program
  from August 2012 through April 2018. For each enforcement action, we
  identify all whistleblowers who receive an award for that enforcement
action and sum up their awards to arrive at the aggregate award for that
enforcement action. We then plot the distribution of aggregate awards by
 enforcement action. Number is the number of aggregate awards that fall
within an award size category. Percent is the number of aggregate awards
 in an award size category as a fraction of the total number of awards.]
------------------------------------------------------------------------
           Award size category                Number          Percent
------------------------------------------------------------------------
Less than $2 million....................              28              62
At least $2 million but less than $5                   9              20
 million................................
At least $5 million but less than $10                  3               7
 million................................
At least $10 million but less than $15                 2               4
 million................................
At least $15 million but less than $20                 0               0
 million................................
At least $20 million but less than $30                 1               2
 million................................
At least $30 million....................               2               4
                                         -------------------------------
    Total...............................              45             100
------------------------------------------------------------------------

4. Estimates of Current Annual Wages
    Prospective whistleblowers' annual wages are potentially relevant
to various aspects of the proposed rules. Table 3 of Section VII(A)(3)
presents, by industry, the pre-tax annual wages per employee (``average
wages'') estimated by the Bureau of Labor Statistics for 2016.\307\
Average wages vary from a low of $22,445 in the leisure and hospitality
industry to a high of $98,458 in the information industry.
---------------------------------------------------------------------------

    \307\ Wage data used for calculating the annual wages per
employee are derived from the quarterly tax reports submitted to
state government workforce agencies by employers, subject to state
unemployment insurance laws, and from Federal agencies subject to
the Unemployment Compensation for Federal Employees program. Further
information is available at https://www.bls.gov/cew/cewbultn16.htm.
---------------------------------------------------------------------------

    These averages do not reflect the substantial degree of within-
industry wage variation. For example, more senior employees involved in
financial activities likely earn higher wages than their more junior
counterparts, and staff that supply significant expertise may earn more
than those that do not. A survey of 2,499 firms registered with the
Commission and included in the Russell 3000 Index as of May 2017
revealed median total CEO compensation at approximately $3.8
million.\308\ A study of the 200 largest pay packages awarded to CEOs
at U.S. public companies in fiscal year 2016 revealed that the median
pay for this group of CEOs was $16.9 million, while the average pay was
$19.7 million.\309\ A 2017 report documenting survey responses from 377
financial professionals included average base salaries for senior-level
financial executives of between $133,859 and $342,154, depending on
title and whether companies are public or private.\310\ Notwithstanding
the foregoing, we think it is relevant to observe that although the
compensation of CEOs and other senior ranking officials provides
insights into the wage variation within a particular industry, in our
experience a company's workforce typically consists of far more lower-

paying positions, relatively speaking. For example, the average base
salary for securities professionals working in New York City in 2015
(the last year for which such data is available) was $388,000 and the
nominal value of the average annual bonus for that year was
approximately $146,200.
---------------------------------------------------------------------------

    \308\ See ``CEO and Executive Compensation Practices: 2017
Edition'' (available at: https://www.conference-board.org/publications/publicationdetail.cfm?publicationid=7584).
    \309\ See ``Equilar 200: Ranking the Largest CEO Pay Packages''
(available at http://www.equilar.com/reports/49-equilar-200-ranking-the-largest-ceo-pay-pakages-2017.html) for a summary of the study
and its findings. See ``Equilar 200: The Largest CEO Pay Packages of
2016'' (available at http://www.equilar.com/reports/49-table-equilar-200-ranking-largest-ceo-pay-packages.html) for the ranking
of CEOs by their pay packages. See ``How the C.E.O. Rankings Were
Done'' (https://www.nytimes.com/2017/05/26/business/how-the-ceo-rankings-were-done.html) for a discussion of the study's
methodology.
    \310\ See ``Financial Executive Compensation Report 2017'' Grant
Thornton, 2017 (available at: https://www.grantthornton.com/~/media/
content-page-files/tax/pdfs/FEI-financial-exec-comp-survey-2017/FEI-
survey-results-2017.ashx).

Table 3 of Section VII(A)(3)--2016 Annual Wages per Employee by Industry
 [This table presents the pre-tax annual wages per employee at privately
owned establishments aggregated by industry as reported by the Bureau of
                            Labor Statistics]
------------------------------------------------------------------------
                                                           Annual wages
                        Industry                           per employee
                                                                ($)
------------------------------------------------------------------------
Natural resources and mining............................         $56,115
Construction............................................          58,647
Manufacturing...........................................          64,870
Trade, transportation, and utilities....................          44,764
Information.............................................          98,458
Financial activities....................................          88,841
Professional and business services......................          69,992
Education and health services...........................          48,058
Leisure and hospitality.................................          22,445
Other services..........................................          35,921
Unclassified............................................          51,837
------------------------------------------------------------------------

B. Analysis of Benefits, Costs, and Economic Effects of the Proposed
Rules

    In this section, we discuss the potential benefits, costs, and
economic effects of the proposed rules. For proposed Rule 21F-6(c), we
also discuss alternatives to the approach contemplated in the proposed
rule as well as reasons for rejecting those alternatives.
1. Proposed Amendments to Rule 21F-2
    Most of the proposed amendments to Rule 21F-2 are either in
response to the Supreme Court's decision in Digital Realty Trust, Inc.
v. Somers \311\ or do not differ substantively from current rules and
practice. Two proposed amendments, however, do represent changes
relative to the economic baseline, and their potential benefits, costs,
and economic effects are discussed here. Proposed Rule 21F-2(a)(1)
would extend employment retaliation protection only to an individual
who provides the Commission with information ``in writing.'' Proposed
Rule 21F-2(d)(1)(iii) would, among other things, limit employment
retaliation protection to lawful acts that ``relate to the subject
matter'' of the person's submission to the Commission under proposed
Rule 21F-2(a).
---------------------------------------------------------------------------

    \311\ 138 S. Ct. 767 (2018).
---------------------------------------------------------------------------

a. Proposed Rule 21F-2(a)(1)
    Proposed Rule 21F-2(a)(1) could potentially impose a burden on
those individuals who want to report potential violations to the
Commission and wish to qualify as a ``whistleblower'' solely for
employment retaliation protection. Such individuals might decide not to
report to the Commission if the reporting burden is perceived to
outweigh the benefits associated with retaliation protection. Our
experience to date in the awards context suggests that requiring that
information be provided in writing presents, at most, a minimal burden
to individuals who want to report violations to the Commission. To the
extent that this experience is informative about the reporting burden
in the retaliation context, such a burden would also be, at most,
minimal. Accordingly, the proposed rule would likely not have an
adverse impact on the whistleblowing incentives of those individuals
who wish to qualify as a ``whistleblower'' solely for employment
retaliation protection.
    We have considered several alternatives to the approach
contemplated in proposed Rule 21F-2(a). The first alternative is to
require information to be provided to the Commission through the online
portal at http://www.sec.gov, or mailing or faxing a Form TCR to the
Office of the Whistleblower. The second alternative is to permit
additional manners of reporting for anti-retaliation purposes (such as
placing a telephone call).
    We rejected the first alternative because it would, in our view,
unnecessarily limit the means of reporting to the Commission by
individuals who are merely seeking employment retaliation protection.
Limiting whistleblower status to those individuals who follow the first
alternative could result in the unnecessary exclusion of individuals
from the benefits of Section 21F(h)(2)'s employment retaliation
protections without providing any accompanying benefit to the
Commission, whistleblowers, or the public generally. Further, requiring
individuals to report ``in writing'' could potentially impose lower
costs (including time spent) on these individuals than the costs they
would have borne under the first alternative.
    We rejected the second alternative because of potential costs that
could arise if the Commission's staff became ensnared by disputes in
private anti-retaliation lawsuits over what information was provided to
whom on what dates. Requiring that any reporting be done in writing
obviates these potential costs.
b. Proposed Rule 21F-2(d)(1)(iii)
    Proposed Rule 21F-2(d)(1)(iii) helps avoid the result that an
individual could qualify just once as a whistleblower and then receive
lifetime protection for any non-Commission reports described in clause
(iii) of Section 21F(h)(1)(A). For individuals who want to make non-
Commission reports about potential violations to their employers and
desire employment retaliation protection for such lawful acts, the
proposed rule could increase the incentives of these individuals to
instead report directly to the Commission. These individuals would only
qualify for employment retaliation protection if they report to the
Commission under the proposed rule. Reporting to the Commission ``in
writing'' as contemplated under proposed Rule 21F-2(a) could
potentially impose a burden on these individuals. In light of the
analysis of proposed Rule 21F-2(a)(1) supra, we believe that such a
reporting burden would, at most, be minimal and would

likely not limit the reporting incentives afforded by proposed Rule
21F-2(d)(1)(iii).
2. Proposed Rule 21F-3(b)(4)
    Proposed Rule 21F-3(b)(4) would provide that a law-enforcement
action will not qualify as a related action if the Commission
determines that there is a separate whistleblower award scheme that
more appropriately applies to the enforcement action. Further, proposed
Rule 21F-3(b)(4) would provide that the Commission will not make an
award to the whistleblower for the related action if the whistleblower
has already been granted an award by the authority responsible for
administering the more applicable whistleblower award program. Further,
under proposed Rule 21F-3(b)(4), if the whistleblower was denied an
award by the other award program, the whistleblower would not be
permitted to readjudicate any issues before the Commission that the
authority responsible for administering the other whistleblower award
program resolved as part of the award denial.
    The proposed rule would prevent a whistleblower from adjudicating
his or her contributions in separate forums and potentially obtaining
two separate awards on the same enforcement action. While the existing
rules preclude this result when an action is applicable to both the
Commission's whistleblower program and the CFTC's whistleblower
program,\312\ the existing rules do not expressly preclude this result
when the non-SEC whistleblower program is administered by an authority
other than the CFTC. Thus, the proposed rule would help the Commission
avoid paying awards that are not reasonably necessary in light of the
whistleblower program's goals in cases where an action is applicable to
the Commission's whistleblower program and the whistleblower program of
an authority other than the CFTC.
---------------------------------------------------------------------------

    \312\ See 17 CFR 240.21F-3(b)(3).
---------------------------------------------------------------------------

    The proposed rule would likely not have an adverse impact on the
incentives of individuals who may report violations that result in
enforcement actions potentially implicating both the Commission's
whistleblower program and the whistleblower program of another
authority other than the CFTC. As discussed earlier in Section II(C),
to date, the Commission has never paid an award on a matter where a
second whistleblower program also potentially applied to the same
matter, nor has the Commission ever indicated that it would do so.
Given that the proposed rule codifies the Commission's current
practice, we believe that these potential whistleblowers would have
already taken such current practice into account when deliberating on
whether to report.
3. Proposed Rule 21F-4(d)(3)
    Proposed Rule 21F-4(d)(3) would provide that, for purposes of
making a whistleblower award, a non-prosecution agreement or deferred
prosecution agreement entered into by the DOJ or a state attorney
general in a criminal case, or a settlement agreement entered into by
the Commission outside of the context of a judicial or administrative
proceeding to address violations of the securities laws will be deemed
to be an ``administrative action'' and any money required to be paid
thereunder will be deemed a ``monetary sanction.'' The proposed rule
will result in more awards being paid from the IPF because awards would
be paid for non-prosecution and deferred prosecution agreements entered
into by the U.S. Department of Justice or a state attorney general as
well as settlement agreements entered into by the Commission in
addition to judicial or administrative proceedings covered by the
existing rules. While potentially increasing payouts from the IPF, the
proposed rule should enhance the incentives for whistleblowers to come
forward in a timely manner to the extent that it signals to prospective
whistleblowers that a wider array of enforcement resolutions may result
in awards.
4. Proposed Rule 21F-6(c)
    Proposed Rule 21F-6(c) would provide a mechanism for the Commission
to adjust upwards any awards that would potentially be below $2 million
to a single whistleblower. However, this new authority would come with
important limitations. Specifically, the Commission will not adjust an
award upward if any of the negative award factors that are identified
in Exchange Act Rule 21F-6(b) \313\ were found to be present with
respect to the whistleblower's award claim, or if the award claim
triggers Exchange Act Rule 21F-16 (concerning awards to whistleblowers
who engage in culpable conduct).\314\
---------------------------------------------------------------------------

    \313\ 17 CFR 240.21F-6(b).
    \314\ 17 CFR 240.21F-16.
---------------------------------------------------------------------------

    The proposed rule could enhance the whistleblowing incentives of
those individuals who anticipate receiving awards below $2 million and
do not expect to be subject to any of the above conditions that would
preclude an application of the award enhancement mechanism. The
prospect of a larger award could encourage these individuals to report
violations to the Commission. By withholding the upward adjustment if a
whistleblower unreasonably delayed reporting to the Commission after
learning the relevant facts, the proposed rule could increase
whistleblowing incentives by encouraging individuals to report
violations promptly and thereby facilitate the Commission's ability to
protect investors.
    The proposed rule could have a deterrent effect on potential
violators because these individuals understand that they would lose the
opportunity for an award enhancement if they engage in securities law
violations and subsequently act as whistleblowers of those violations.
Similarly, the proposed rule could have a deterrent effect on potential
whistleblowers who contemplated interfering with an internal compliance
and reporting system by denying award enhancements to such potential
whistleblowers.
    From a cost perspective, the proposed rule could potentially result
in larger awards being paid from the IPF because an award that would
yield a potential payout to a single whistleblower below $2 million may
be adjusted upward. As indicated in Table 1 of Section VII(A)(3), the
Commission has granted 31 whistleblower awards (i.e., 62% of awards)
that were below $2 million. To the extent that the distribution of past
awards provides a reasonable estimate of the distribution of likely
future awards, smaller awards are likely in the future, some of which
could be subject to the proposed rule.
5. Proposed Rule 21F-6(d)
a. Consideration of Proposed Rule
    Proposed Rule 21F-6(d) would provide a mechanism for the Commission
to conduct an enhanced review of awards where the total monetary
sanctions collected in the Commission or related actions would equal at
least $100 million and where the potential payout to a single
whistleblower in connection with those actions would exceed $30
million. Where these two conditions are met, the proposed rule would
afford the Commission the discretion to determine if it is appropriate
to adjust the award downward. The goal of any downward adjustment is to
ensure that the likely total award payout to the whistleblower does not
exceed an amount that the Commission determines is appropriate to
achieve the program's objectives of rewarding meritorious
whistleblowers and sufficiently incentivizing future whistleblowers.
However, consistent with the statutory mandate, in no event

would the total amount awarded to all whistleblowers in the aggregate
be less than 10 percent of the monetary sanctions collected from the
action. Further, an application of the proposed rule would not result
in a reduction of an award below $30 million. We believe that the
proposed rule could foster a more efficient use of the IPF by reducing
the likelihood of awards that are excessive in light of the
whistleblower program's goals and the interests of investors and the
broad public interest. As indicated in Table 1 of Section VII(A)(3), we
have granted three whistleblower awards that exceeded $30 million.
These three awards alone reduced the balance of the IPF by
approximately $112 million. To the extent that the distribution of past
awards provides a reasonable estimate of the distribution of likely
future awards, large awards are likely in the future, some of which
could be subject to the proposed rule. Absent the proposed rule, the
Commission may find itself faced with the possibility of paying out
significantly large awards that are in excess of the amounts
appropriate to advance the goals of the whistleblower program, the
interests of investors and the broad public interest. These awards
could also substantially diminish the IPF, requiring the Commission to
direct more funds to replenish the IPF rather than directing those
funds to the United States Treasury where they could be used for other
important public purposes.\315\
---------------------------------------------------------------------------

    \315\ See Section VII(A)(3) for a discussion of the IPF and its
replenishment mechanism.
---------------------------------------------------------------------------

    As whistleblowers consider their reporting decisions, they weigh,
among other things, the expected size of the award and the expected
costs associated with their whistleblowing. We acknowledge that
proposed paragraph 6(d) could shift the upper end of the distribution
of expected awards. However, we recognize that realized awards to date
are typically substantially smaller in magnitude. In addition,
according to the Office of the Whistleblower, of the 55 individuals who
have received awards, approximately 10 percent are high-ranking
corporate executives at companies of varying sizes and a large majority
of these executives received awards that were under $5 million. This
indicates to us that, as a practical matter, even those whistleblowers
with the most to lose in terms of potential income have been willing to
come forward for a recovery below the proposed $30 million floor. Thus,
the data available does not indicate that proposed paragraph 6(d) would
discourage whistleblowers from coming forward.
    Additional factors further support the view that potential
whistleblowers will not be discouraged from coming forward as a result
of proposed paragraph 6(d). As discussed earlier, $30 million would be
a floor, not a ceiling on large awards. Rather, $30 million is the
point above which we would begin to consider whether the likely award
is consistent with the program's objectives; we may choose not to
reduce the award.
    Further, the operation of proposed paragraph 6(d) would likely
affect only a small subset of potential whistleblowers. As discussed in
Section VII(A)(3) above, to date we have issued 50 whistleblower awards
to 55 individuals (including, as explained above, individuals who acted
as joint whistleblowers) and only three awards (i.e., 6% of awards)
have exceeded $30 million.\316\ To the extent that the distribution of
past awards provides a reasonable estimate of the distribution of
likely future awards, and potential whistleblowers do not
systematically over- or underestimate the size of recoveries,\317\ only
a minority of potential whistleblowers would be potentially affected by
the proposed rule.\318\
---------------------------------------------------------------------------

    \316\ One award that exceeded $30 million was issued in
September 2014 in a Commission action and related actions. See Order
Determining Whistleblower Award Claim, Exchange Act Release No. 34-
73174 (Sept. 22, 2014), available at https://www.sec.gov/rules/other/2014/34-73174.pdf. The second and third awards that exceeded
$30 million were issued in March 2018 in a Commission action. See
Order Determining Whistleblower Award Claim, Exchange Act Release
No. 34-82897 (March 19, 2018), available at https://www.sec.gov/rules/other/2018/34-82897.pdf.
    \317\ The proposed rule could affect a larger subset of
potential whistleblowers if potential whistleblowers systematically
overestimate the size of the recovery; conversely, the proposed rule
could affect a smaller subset of potential whistleblowers if
potential whistleblowers systematically underestimate the size of
the recovery.
    \318\ We acknowledge that there are other pending awards that
could exceed the $30 million floor. We do not discuss those matters
here because they have not been finalized, but we note that such
awards would still constitute a relatively small proportion of the
overall future potential awards that the Commission is likely to
make.
---------------------------------------------------------------------------

    Additionally, our review of the academic literature relevant to
whistleblower incentives indicates that whistleblowers are often
willing to report notwithstanding the absence of financial incentives.
Non-monetary incentives that can motivate individuals to report
include: (i) A desire to see wrongdoers punished, (ii) an interest in
``doing the right thing'' for the sake of investors or others who might
be harmed by the wrongdoing, or (iii) a desire to protect one's own
self-interests.\319\
---------------------------------------------------------------------------

    \319\ See Anthony Heyes & Sandeep Kapur, An Economic Model of
Whistleblower Policy, 25 J. L. Econ. & Org. 164-166 (2009)
(providing a short review of academic literature on sociology and
psychology and listing non-monetary motives for whistleblowing); see
also Aaron S. Kesselheim et al., Whistle-Blower's Experience in
Fraud Litigation Against Pharmaceutical Companies, 362 New England
J. Med. 1834, 1835 (2010) (listing self-preservation, justice,
integrity, altruism or public safety as primary motivations for qui
tam lawsuits). See Securities Whistleblower Incentives and
Protections, Exchange Act Release No. 64545, 76 FR at 34360, note
453 (June 13, 2011).
---------------------------------------------------------------------------

    Moreover, even at the $30 million floor that we are proposing, it
appears to us that a $30 million award could yield a lump sum that, if
invested in an annuity, could generate an annual return that is
attractive in light of the wage and salary data presented in Section
VII(A)(4).\320\ A number of non-mutually exclusive factors can
contribute to making the lump sum smaller than the whistleblower award.
First, to the extent that the whistleblower wishes to remain anonymous
through the course of an investigation and resulting enforcement
action, that whistleblower must have an attorney represent him or her
in connection with a submission of information and claim for an
award.\321\ The payment of attorney fees out of the whistleblower award
would likely reduce the lump sum that could be invested in an annuity.
Second, if the whistleblower award is awarded to two or more
individuals who acted together as a joint whistleblower, then the award
would likely be divided among the individual whistleblowers. Such a
division of the award among the individual whistleblowers would reduce
the lump sum that each individual could invest in an annuity.
---------------------------------------------------------------------------

    \320\ We note that the annual incomes presented below are pre-
tax numbers, as are the wage and salary data presented in Section
VII(A)(4).
    \321\ See 17 CFR 240.21F-7(b)(1).
---------------------------------------------------------------------------

    To illustrate the annual income that a whistleblower could
potentially receive by investing the lump sum residual award that
remains after accounting for the factors discussed above, we annuitize
a range of possible lump sums to generate different streams of
payments. Such payments could potentially replace the stream of wage
payments that a whistleblower would lose by leaving his or her
employer. Alternatively, if the whistleblower experiences no change in
his or her employment situation, the payments could be interpreted as
additional income.
    In Table 4 in Section VII(B)(5)(a), we report the annual income
that could be generated over twenty years by

investing a lump sum upfront payment in a twenty-year annuity.\322\ To
capture the potential effects associated with taxes, attorneys' fees,
and award division among individuals acting as a joint whistleblower,
we calculate different annual incomes by varying the upfront payment
from $5 million to $50 million in $5 million increments, and by varying
the rate of return on the annuity from 2% per annum to 10% per annum in
2% increments. As an example, investing an upfront amount of $20
million in the annuity at 2% per annum generates an annual income of
approximately $1.2 million.\323\ Table 4 indicates that increasing the
upfront payment while holding the rate of return constant increases the
annual income; in addition, increasing the rate of return while holding
the upfront payment constant also increases the annual income. To
illustrate the effects of lengthening the duration of income
generation, we repeat the calculations assuming a lump sum investment
in a forty-year annuity (Table 5 in Section VII(B)(5)(a)), a sixty-year
annuity (Table 6 in Section VII(B)(5)(a)), and a perpetuity \324\
(Table 7 in Section VII(B)(5)(a)). In Tables 5, 6, and 7, we continue
to calculate different annual incomes by varying the upfront payment
from $5 million to $50 million in $5 million increments, and by varying
the rate of return on the annuity from 2% per annum to 10% per annum in
2% increments.\325\
---------------------------------------------------------------------------

    \322\ The other assumptions used in the calculations are: A
fixed income is paid at the end of every month; monthly compounding
of interest; there is no residual income at the end of the annuity;
the annuity has 12 x 20 = 240 monthly payments; income is pre-tax;
annual income is 12 multiplied by the monthly income generated by
the annuity (e.g., for an upfront payment of $20 million and a 2%
rate of return per annum, the annuity generates a monthly income of
$101,176.67. Multiplying $101,176.67 by 12 yields the $1,214,120
figure reported in the table.) These assumptions notwithstanding, we
note that only a portion of the fixed income generated by a
purchased commercial annuity is taxable under IRS rules. See
Internal Revenue Service Publication 939, General Rule for Pensions
and Annuities available at https://www.irs.gov/pub/irs-pdf/p939.pdf.
    \323\ Id.
    \324\ A perpetuity is a stream of fixed, periodic payments that
go on indefinitely.
    \325\ The other assumptions used in Table 6-8 are: A fixed
income is paid at the end of every month; monthly compounding of
interest; there is no residual income at the end of the annuity; the
annuity has monthly payments; income is pre-tax; annual income is 12
multiplied by the monthly income generated by the annuity. These
assumptions notwithstanding, we note that only a portion of the
fixed income generated by a purchased commercial annuity is taxable
under IRS rules. See Internal Revenue Service Publication 939,
General Rule for Pensions and Annuities available at https://www.irs.gov/pub/irs-pdf/p939.pdf.

                Table 4 in Section VII(B)(5)(a)--Annual Income Generated by a Twenty Year Annuity
 [We assume that a lump sum upfront payment is invested in a twenty-year annuity to generate annual income over
    twenty years. We calculate different annual incomes by varying the upfront payment from $5 million to $50
 million in $5 million increments, and by varying the rate of return on the annuity from 2% per annum to 10% per
                                             annum in 2% increments]
----------------------------------------------------------------------------------------------------------------
                                                                  Rate of return
         Upfront payment         -------------------------------------------------------------------------------
                                        2%              4%              6%              8%              10%
----------------------------------------------------------------------------------------------------------------
$5,000,000......................        $303,530        $363,588        $429,859        $501,864        $579,013
10,000,000......................         607,060         727,176         859,717       1,003,728       1,158,026
15,000,000......................         910,590       1,090,765       1,289,576       1,505,592       1,737,039
20,000,000......................       1,214,120       1,454,353       1,719,435       2,007,456       2,316,052
25,000,000......................       1,517,650       1,817,941       2,149,293       2,509,320       2,895,065
30,000,000......................       1,821,180       2,181,529       2,579,152       3,011,184       3,474,078
35,000,000......................       2,124,710       2,545,117       3,009,010       3,513,048       4,053,091
40,000,000......................       2,428,240       2,908,706       3,438,869       4,014,912       4,632,104
45,000,000......................       2,731,770       3,272,294       3,868,728       4,516,776       5,211,117
50,000,000......................       3,035,300       3,635,882       4,298,586       5,018,640       5,790,130
----------------------------------------------------------------------------------------------------------------

                Table 5 in Section VII(B)(5)(a)--Annual Income Generated by a Forty Year Annuity
  [We assume that a lump sum upfront payment is invested in a forty-year annuity to generate annual income over
forty years. We calculate different annual incomes by varying the upfront payment from $5 million to $50 million
in $5 million increments, and by varying the rate of return on the annuity from 2% per annum to 10% per annum in
                                                 2% increments]
----------------------------------------------------------------------------------------------------------------
                                                                  Rate of return
       Upfront payment        -------------------------------------------------------------------------------------
                                     2%              4%              6%              8%              10%       10%
------------------------------------------------------------------------------------------------------------- -----
$5,000,000...................        $181,695        $250,763        $330,128        $417,187        $509,488
10,000,000...................         363,391         501,526         660,256         834,374       1,018,975
15,000,000...................         545,086         752,289         990,385       1,251,561       1,528,463
20,000,000...................         726,782       1,003,052       1,320,513       1,668,748       2,037,950
25,000,000...................         908,477       1,253,815       1,650,641       2,085,935       2,547,438
30,000,000...................       1,090,172       1,504,578       1,980,769       2,503,122       3,056,925
35,000,000...................       1,271,868       1,755,342       2,310,897       2,920,309       3,566,413
40,000,000...................       1,453,563       2,006,105       2,641,025       3,337,496       4,075,900
45,000,000...................       1,635,258       2,256,868       2,971,154       3,754,683       4,585,388
50,000,000...................       1,816,954       2,507,631       3,301,282       4,171,870       5,094,875
----------------------------------------------------------------------------------------------------------------

                Table 6 in Section VII(B)(5)(a)--Annual Income Generated by a Sixty Year Annuity
  [We assume that a lump sum upfront payment is invested in a sixty-year annuity to generate annual income over
sixty years. We calculate different annual incomes by varying the upfront payment from $5 million to $50 million
in $5 million increments, and by varying the rate of return on the annuity from 2% per annum to 10% per annum in
                                                 2% increments]
----------------------------------------------------------------------------------------------------------------
                                                                  Rate of return
         Upfront payment         -------------------------------------------------------------------------------
                                        2%              4%              6%              8%              10%
----------------------------------------------------------------------------------------------------------------
5,000,000.......................        $143,163        $220,042        $308,505        $403,373        $501,274
10,000,000......................         286,326         440,083         617,011         806,746       1,002,548
15,000,000......................         429,489         660,125         925,516       1,210,119       1,503,821
20,000,000......................         572,652         880,166       1,234,022       1,613,492       2,005,095
25,000,000......................         715,815       1,100,208       1,542,527       2,016,865       2,506,369
30,000,000......................         858,978       1,320,249       1,851,033       2,420,238       3,007,643
35,000,000......................       1,002,141       1,540,291       2,159,538       2,823,611       3,508,917
40,000,000......................       1,145,304       1,760,332       2,468,044       3,226,984       4,010,191
45,000,000......................       1,288,466       1,980,374       2,776,549       3,630,357       4,511,464
50,000,000......................       1,431,629       2,200,415       3,085,055       4,033,730       5,012,738
----------------------------------------------------------------------------------------------------------------

                   Table 7 in Section VII(B)(5)(a)--Annual Income Generated From a Perpetuity
 [We assume that a lump sum upfront payment is invested in a perpetuity to generate annual income in perpetuity.
    We calculate different annual incomes by varying the upfront payment from $5 million to $50 million in $5
  million increments, and by varying the rate of return on the annuity from 2% per annum to 10% per annum in 2%
                                                   increments]
----------------------------------------------------------------------------------------------------------------
                                                                  Rate of return
         Upfront payment         -------------------------------------------------------------------------------
                                        2%              4%              6%              8%              10%
----------------------------------------------------------------------------------------------------------------
5,000,000.......................        $100,000        $200,000        $300,000        $400,000        $500,000
10,000,000......................         200,000         400,000         600,000         800,000       1,000,000
15,000,000......................         300,000         600,000         900,000       1,200,000       1,500,000
20,000,000......................         400,000         800,000       1,200,000       1,600,000       2,000,000
25,000,000......................         500,000       1,000,000       1,500,000       2,000,000       2,500,000
30,000,000......................         600,000       1,200,000       1,800,000       2,400,000       3,000,000
35,000,000......................         700,000       1,400,000       2,100,000       2,800,000       3,500,000
40,000,000......................         800,000       1,600,000       2,400,000       3,200,000       4,000,000
45,000,000......................         900,000       1,800,000       2,700,000       3,600,000       4,500,000
50,000,000......................       1,000,000       2,000,000       3,000,000       4,000,000       5,000,000
----------------------------------------------------------------------------------------------------------------

    The annuity figures in Tables 4 through 7 in Section VII(B)(5)(a)
are consistent with our belief that the proposed $30 million floor
should not negatively impact the overall pecuniary incentives faced by
most potential whistleblowers considering whether to come forward to
the Commission to report potential misconduct.\326\
---------------------------------------------------------------------------

    \326\ It is possible that the proposed rule could introduce
uncertainty or ambiguity about the likely size of the whistleblower
award, which may affect the incentives of individuals to report
potential violations. See e.g., Itzhak Gilboa & David Schmeidler,
Maxmin Expected Utility with Non-Unique Prior, 18 J. Mathematical
Econ. 141 (1989) (proposing an axiomatic foundation of a decision
rule based on maximizing expected minimum payoff of a strategy). See
also infra note 330.
---------------------------------------------------------------------------

    In addition, to the extent that the costs associated with
whistleblowing include social stigma and a possible job loss for the
whistleblower, the employment anti-retaliation protections and
confidentiality requirements (including, critically, the ability of
whistleblowers to remain anonymous) can serve to reduce the costs
associated with whistleblowing to some extent.\327\ Indeed, our
experience to date has been that many company insiders have submitted
their tips to the Commission anonymously.
---------------------------------------------------------------------------

    \327\ See 15 U.S.C. 78u-6(d) and (h); 17 CFR 240.21F-9(c).
---------------------------------------------------------------------------

b. Estimating Incentives To Provide Information
    The Commission has sought to provide a quantitative estimate of the
incentives to provide information via the whistleblower program. We
acknowledge that a rigorous approach to analyzing the potential impact
of the proposed changes on whistleblower incentives, would be to
compare the number of whistleblower tips that resulted in successful
enforcement actions before and after the establishment of the
Commission's whistleblower program. Such a comparison could elucidate
changes in behavior due to the whistleblower program, including
potentially those due to the provision of monetary awards. However,
data on whistleblower tips that led to successful enforcement actions
prior to the establishment of the Commission's whistleblower program is
not available, thus rendering such a comparison infeasible. Even absent
such data, the Commission has engaged in a limited comparison of a pre-
2011 awards program with the current whistleblower program. Section
21A(e) of the Exchange Act, added in 1988, authorized the Commission to
award a bounty to a person who provides information leading to the
recovery of a civil penalty from an insider trader, from a person who
tipped information to an insider traders, or from a person who directly
or indirectly controlled an insider trader. Section 21A(e) also
established a limit on bounties of 10% of the amount recovered.
    A March 2010 report by the SEC's Office of the Inspector General
documented bounty applications and awards under the Commission's bounty
program since its inception in 1989.\328\ Between 1989 and 2010, the
program had paid a total of $159,537 to five claimants in seven insider
trading cases, at the statutory limit of 10% of

recoveries.\329\ In contrast, since the inception of the whistleblower
program in 2011 the Commission has ordered a single whistleblower
payout related to an insider trading case, and that payout was less
than $500,000.
---------------------------------------------------------------------------

    \328\ See U.S. Securities and Exchange Commission, Office of the
Inspector General, Assessment of the SEC's Bounty Program, March 29,
2010.
    \329\ Id at 5.
---------------------------------------------------------------------------

    Any comparison of the bounty program and the whistleblower program
is limited by substantial differences between the bounty program and
the whistleblower program in scope and process. Although the number of
payments in insider trading cases has declined under the current
program, the larger scope and breadth of the whistleblower program has
resulted in a substantial increase in the number and magnitude of
payments overall. Differences in measures of whistleblower incentives
before and after the establishment of the whistleblower program likely
will reflect a combination of changes to Commission processes that
occurred simultaneously or very close in time, limiting our ability to
identify the impact of any single change on whistleblower incentives.
For example, while the 2011 rules implemented an increase in the
maximum award percentage to 30% from the previous 10% maximum, they
also established a 10% minimum award percentage.\330\ Further, the 2011
rules also increased the scope of potential claims to include actions
beyond insider trading and established an Office of the Whistleblower,
actions that likely served to increase the prominence of the
whistleblower program relative to the bounty program that preceded it.
The implementing rules also set forth an updated process for the
submission and evaluation of claims following criticisms that the
bounty program was opaque and difficult for whistleblowers to navigate.
Further, the statutory changes to the Exchange Act that established the
whistleblower program also included explicit whistleblower protections.
As we acknowledge that these factors limit the degree to which we can
assess the potential impact on incentives of the proposed changes to
the whistleblower program based on the transition from the bounty
program to the whistleblower program, the Commission welcomes comment
on changes to other whistleblower programs or alternative analytical
methods that would permit more precise identification and
quantification of the proposal's potential impacts.
---------------------------------------------------------------------------

    \330\ See S. Rep. No. 111-176 at 110-12 (2010) at 111 (noting
the majority view that ``the critical component of the Whistleblower
Program is the minimum that any individual could look towards in
determining whether to take the enormous risk of blowing the whistle
in calling attention to fraud'').
---------------------------------------------------------------------------

c. Alternatives
    The Commission has considered several alternatives to proposed Rule
21F-6(d). We discuss each of those alternatives below.
    The first alternative is to set the floor at $5 million, and the
second alternative is to set the floor at $50 million.
    We believe that a $5 million floor could potentially apply to
awards that are not the focus of the proposed amendment. As indicated
in Table 1 of Section VII(A)(3), approximately 16% of past
whistleblower awards are at least $5 million. To the extent that the
distribution of past awards is a reasonable estimate of the
distribution of likely future awards, this floor could result in the
enhanced review of awards that are aligned with the program's goals.
Because the focus of the proposed rule is on large awards that are not
reasonably necessary to achieve the program's goals and that could
disproportionately diminish the IPF, the $5 million floor is not
preferable to the proposed approach.
    A $50 million floor is not preferable to the proposed approach. We
have not granted awards that are at least $50 million. Even if there
were some cases where the proposed rule might be triggered, our
discretion to make a meaningful and appropriate downward adjustment
would be substantially reduced. Thus, the $50 million floor would
likely not support the proposed rule's goal of ensuring that the likely
total award payout to the whistleblower does not exceed an amount that
the Commission determines is appropriate to further the goals of the
whistleblower program. Because of this concern, we believe that the $50
million floor is not preferable to the proposed approach.
6. Proposed Rule 21F-8(e)
    Under proposed Rule 21F-8(e), if an applicant submits three or more
award applications that the Commission finds to be frivolous or lacking
a colorable connection between the tip and the Commission action, the
Commission may permanently bar the applicant from submitting any
additional award applications (either for Commission actions or related
actions) and the Commission would not consider any other award
applications that the claimant has submitted or may seek to submit in
the future.
    The proposed rule would expressly provide, however, that the Office
of the Whistleblower shall as a preliminary matter advise any claimant
of the Office's assessment that the claimant's award application for a
Commission action is frivolous or lacking a colorable connection
between the tip and the action for which the applicant has sought an
award. If the applicant withdraws the application at that time, it
would not be considered by the Commission in determining whether to
exercise its authority to impose a bar.
    In addition, the proposed rule would generally codify the
Commission's current practice with respect to applicants who violate
Rule 21F-8(c)(7).\331\ That rule provides that an applicant shall be
ineligible for an award if, in his or her whistleblower submission, his
or her other dealings with the Commission, or his or her dealings with
another authority in connection with a related action, the individual
knowingly and willfully makes any false, fictitious, or fraudulent
statement or representation, or uses any false writing or document
knowing that it contains any false, fictitious, or fraudulent statement
or entry with intent to mislead or otherwise hinder the Commission or
another authority. The Commission has issued two final orders that have
permanently barred the applicants from submitting any further
whistleblower award applications based on violations of Rule 21F-
8(c)(7). The proposed rule would clarify and codify the Commission's
authority to bar applicants by providing that if the Commission finds
that a claimant has violated paragraph (c)(7) of Rule 21F-8, the
Commission may permanently bar the applicant from making any future
award applications, and shall decline to process any other award
applications that the claimant has already submitted.
---------------------------------------------------------------------------

    \331\ 17 CFR 240.21F-8(c)(7).
---------------------------------------------------------------------------

    The proposed rule could increase the speed and efficiency of the
award determination process.\332\ By permanently barring applicants
that make three or more frivolous award applications, as well as not
processing any future applications from these barred applicants, the
proposed rule could help free up staff resources that could then be
devoted to processing potentially meritorious award applications. In
the Commission's experience to date, two individuals have submitted
approximately 24% of all award applications in connection with
Commission covered actions. All but one of the applications submitted
by

these two individuals have been found by the Office of the
Whistleblower to be entirely frivolous. To the extent that the agency's
historical experience is informative about the likely behavior of
applicants that submit multiple frivolous award applications in the
future, the proposed rule would have a meaningful impact in terms of
freeing up staff resources that could then be devoted to processing
potentially meritorious award applications. This redeployment of staff
resources in turn could expedite the processing of potentially
meritorious award applications. More broadly, staff resources that are
freed up as a result of the proposed rule could be devoted to other
work related to the whistleblower program including, but not limited
to, the posting of Notices of Covered Actions, determining potential
payouts, and manning the whistleblower hotline.\333\ Further, as
discussed in Section II(F), above, we have found that the repeat
applicants that would be covered by proposed Rule 21F-8(e)(1) can
significantly delay the processing of meritorious award applications
and the eventual payment of awards by utilizing the procedural
opportunities to object to an award. By barring such applicants, the
proposed rule could reduce the delay in processing meritorious award
applications and the eventual payment of awards.
---------------------------------------------------------------------------

    \332\ We acknowledge that this potential benefit rests, in part,
on the premise that the applicants covered by the proposed rule
would likely not change their behavior with respect to the overall
award determination process. For example, an applicant that has been
found to submit multiple frivolous award applications in the past
would likely continue to do so in the future.
    \333\ To help promote the SEC's whistleblower program and
establish a line of communication with the public, the Office of the
Whistleblower operates a hotline where whistleblowers, their
attorneys, or other members of the public with questions about the
program may call to speak to the Office of the Whistleblower's
staff. During FY 2017, the Office of the Whistleblower returned
nearly 3,200 calls from members of the public, exceeding the number
of calls returned the prior fiscal year. Since May 2011 when the
hotline was established, the Office of the Whistleblower has
returned over 18,600 calls from the public. See SEC Whistleblower
Program 2017 Annual Report to Congress (Nov. 15, 2017), available at
https://www.sec.gov/files/sec-2017-annual-report-whistleblower-program.pdf.
---------------------------------------------------------------------------

    The abovementioned benefit would also potentially arise from the
proposed rule's deterrent effect to the extent that the proposed rule
discourages individuals from submitting frivolous award applications
because they recognize that the submission of frivolous award
applications may ultimately permanently disqualify them from obtaining
a whistleblower award.
    Overall, the proposed rule could increase the speed and efficiency
of the award determination process by expediting the processing of
potentially meritorious award applications, as well as the payment of
awards. To the extent that faster award application processing and
award payment motivate whistleblowing, individuals are more likely to
come forward and report potential violations as a result of the
proposed rule.
    The proposed rule could help protect investors and the public from
potential harm (particularly where the misconduct concerns ongoing
Commission actions) that may flow from the provision of false,
fictitious, or fraudulent statement or representation, or false writing
or document with intent of misleading or otherwise hindering the
Commission or another authority. This benefit would potentially arise
because the proposed rule would grant the Commission discretion to
permanently bar applicants that violated Rule 21F-8(c)(7) from
submitting any future award applications.\334\ This benefit would also
potentially arise from the proposed rule's deterrent effect to the
extent that the proposed rule discourages individuals from engaging in
the conduct prohibited by Rule 21F-8(c)(7), particularly when they are
submitting their award applications, because they should recognize that
it may not only lead to a denial of their current award claim but may
also permanently disqualify them from obtaining a whistleblower award.
---------------------------------------------------------------------------

    \334\ See supra text accompanying notes 184-189, 331.
---------------------------------------------------------------------------

    Individuals who are permanently barred under the proposed rule
might subsequently have information about possible securities law
violations that could be provided to the Commission. To the extent that
these barred individuals' decision to report is based solely on the
pecuniary motivation of obtaining a whistleblowing award, these
individuals may decide not to report even if they have information
about possible violations because they can no longer obtain a
whistleblower award as a result of the proposed rule. We believe that
this potential cost of the proposed rule could be mitigated by a number
of factors.
    First, the number of individuals who may be permanently barred by
the proposed rule for submitting three or more frivolous applications
and who might subsequently have information about possible securities
law violations that could be provided to the Commission is likely to be
a small fraction of the population of award applicants. Based on our
experience to date, we have found that individuals that submitted three
or more award applications make up 6.6% of the population of covered
action award applicants. This estimate constitutes an upper bound of
the actual fraction of applicants that submitted three or more
frivolous applications and subsequently had information about possible
securities law violations that could be provided to the
Commission.\335\ To the extent that our estimate is informative of the
likely fraction of award applicants who may be permanently barred by
the proposed rule, the potential cost associated with the proposed rule
would be limited.
---------------------------------------------------------------------------

    \335\ To date, four applicants submitted three or more
applications that were determined to be potentially meritorious and
not frivolous.
---------------------------------------------------------------------------

    Second, as discussed above, the Commission has issued two final
orders that have permanently barred the applicants from submitting any
further whistleblower award applications based on violations of Rule
21F-8(c)(7). The proposed rule would clarify and codify the
Commission's authority to bar applicants by providing that if the
Commission finds that a claimant has violated paragraph (c)(7) of Rule
21F-8, the Commission may permanently bar the applicant from making any
future award applications, and shall decline to process any other award
applications that the claimant has already submitted. Given that the
proposed rule codifies the Commission's current practice, we believe
that individuals who have been barred on the basis of Rule 21F-8(c)(7)
would have already taken such current practice into account when
deliberating on whether to report, even in the absence of the proposed
rule.
    Finally, as discussed in the adopting release that accompanied the
original whistleblower rules, whistleblowing is an individual decision
that is generally guided by a complex mix of pecuniary elements and
non-pecuniary elements.\336\ Individuals that are permanently barred
from applying for whistleblower awards may still come forward and
provide information about possible violations if they are sufficiently
motivated by non-pecuniary elements.\337\
---------------------------------------------------------------------------

    \336\ See Securities Whistleblower Incentives and Protections
Adopting Release, 76 FR at 34355, note 433.
    \337\ Id. An example of a non-pecuniary element is a sense of
``doing the right thing.''
---------------------------------------------------------------------------

    We also acknowledge the possibility that individuals who have made
fewer than three frivolous award applications \338\ might be
discouraged from reporting possible securities law violations because
their next award application could be determined to be frivolous, which
would increase the likelihood of a permanent bar from making any future
award applications.

We believe that this potential cost of the proposed rule could be
mitigated by a number of factors.
---------------------------------------------------------------------------

    \338\ These individuals include those who are considering
reporting a possible violation for the first time, those who have
made one frivolous claim, and those who have made two frivolous
claims.
---------------------------------------------------------------------------

    First, as discussed above, the proposed rule would expressly
provide that the Office of the Whistleblower shall as a preliminary
matter advise any claimant of the Office's assessment that the
claimant's award application for a Commission action is frivolous or
lacking a colorable connection between the tip and the action for which
the applicant has sought an award. If the applicant withdraws the
application at that time, it would not be considered by the Commission
in determining whether to exercise its authority to impose a bar. We
believe that this aspect of the proposed rule should alleviate the
concerns among those individuals who have made fewer than three
frivolous award applications that their next award application could be
determined to be frivolous, which would increase the likelihood of a
permanent bar from making any future award applications. Second, the
claims adjudication processes that are specified in Rule 21F-10 and
Rule 21F-11 afford a whistleblower the opportunity to demonstrate the
meritorious nature of her claim should her claim be preliminarily
denied on the grounds of being frivolous. Thus, the claims adjudication
processes should help ensure that potentially meritorious claims will
be considered as such by the Commission. Third, as discussed above,
whistleblowing is an individual decision that is generally guided by a
complex mix of pecuniary elements and non-pecuniary elements.\339\
Individuals who are concerned about being permanently barred from
applying for whistleblower awards may still come forward and provide
information about possible violations if they are sufficiently
motivated by non-pecuniary elements.\340\
---------------------------------------------------------------------------

    \339\ See Securities Whistleblower Incentives and Protections
Adopting Release, 76 FR at 34355, note 433.
    \340\ Id. An example of a non-pecuniary element is a sense of
``doing the right thing.''
---------------------------------------------------------------------------

7. Proposed Rule 21F-18
    Proposed Rule 21F-18(a) provides that the Office of the
Whistleblower may use a summary disposition process to deny any award
application that falls within any of the following categories: (1)
Untimely award application; \341\ (2) noncompliance with the
requirements of Rule 21F-9,\342\ which concerns the manner for
submitting a tip to qualify as a whistleblower and to be eligible for
an award; (3) claimant's information was never provided to or used by
the staff handling the covered action or the underlying investigation
(or examination), and those staff members otherwise had no contact with
the claimant; (4) noncompliance with Rule 21F-8(b),\343\ which requires
an applicant to submit supplemental information that the Commission may
require \344\ and to enter into a confidentiality agreement; or (5)
failure to specify in the award application the submission that the
claimant made pursuant to Rule 21F-9(a) \345\ upon which the claim to
an award is based. In addition, the proposed rule would provide that
other defective or non-meritorious award applications could be subject
to the summary disposition process under appropriate circumstances.
Proposed Rule 21F-18(b) specifies the procedures that shall apply to
any award application designated for summary disposition.
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    \341\ The time periods for submitting an award application are
specified in Rule 21F-10(b) and Rule 21F-11(b). See 17 CFR 240.21F-
10(b) & 11(b).
    \342\ 17 CFR 240.21F-9.
    \343\ 17 CFR 240.21F-8(b).
    \344\ The authority to require additional information of an
applicant is delegated to the Office of the Whistleblower. See 17
CFR 240.21F-10(d).
    \345\ 17 CFR 240.21F-9(a).
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    The proposed rule could reduce the diversion of staff resources and
time that it might otherwise take to process claims that may be
rejected on straightforward grounds. An award application that is
processed by the proposed summary disposition process would not require
the Claims Review Staff to review the record, issue a Preliminary
Determination, consider any written response filed by the claimant, or
issue the Proposed Final Determination; these functions would be
assumed by the Office of the Whistleblower. The summary disposition
process incorporates two other modifications. First, the 30-day period
for replying to a Preliminary Summary Disposition is shorter than the
time period for replying to a Preliminary Determination provided for in
Rules 21F-10(e)(2) \346\ and 21F-11(e)(2).\347\ This shorter period
should be sufficient for a claimant to reply and that it is appropriate
given that the matters subject to summary disposition should be
relatively straightforward. Second, a claimant would not have the
opportunity to receive the full administrative record upon which the
Preliminary Denial was based. Instead, the Office of the Whistleblower
would (to the extent appropriate given the nature of the denial)
provide the claimant with a staff declaration that contains the
pertinent facts upon which the Preliminary Summary Disposition is
based. This modification from the record-review process specified in
Rules 21F-10 and 21F-11 should still afford any claimant a sufficient
opportunity to provide a meaningful reply to a Preliminary Summary
Disposition. This should eliminate the delay that can arise when a
claimant does not expeditiously request the record (which in turn
delays the start of the 60-day period for a claimant to submit a
response to a preliminary determination); elimination of these delays
should help further expedite the summary adjudication process that we
are proposing.
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    \346\ 17 CFR 240.21F-10(e)(2).
    \347\ 17 CFR 240.21F-11(e)(2).
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    As with Proposed Rule 21F-8(e), staff resources that are freed up
as a result of the proposed rule could be devoted to processing
potentially meritorious award applications. This, in turn, could
expedite the processing of potentially meritorious award applications.
To the extent that faster processing of potentially meritorious award
applications motivates whistleblowing, individuals may be more likely
to come forward and report potential violations as a result of the
proposed rule. Further, as noted in the discussion of proposed Rule
21F-8(e) above, staff resources that are freed up as a result of the
proposed rule could be devoted to other work related to the
whistleblower program.
    We acknowledge the potential that certain aspects of the proposed
rule might make it more difficult for whistleblowers to respond to the
denial of award applications. The proposed rule might reduce the
whistleblowing incentives of those individuals who consider the ease of
responding to award application denials when deciding whether to come
forward and report potential violations.
    However, certain factors limit this potential for increased
difficulties for whistleblowers. First, given that the matters subject
to summary disposition should be relatively straightforward, we believe
that the 30-day period for replying to a Preliminary Summary
Disposition and the provision of a staff declaration (where applicable)
should afford any claimant a sufficient opportunity to provide a
meaningful reply to a Preliminary Summary Disposition. Second, as
discussed above, the proposed rule may only be used to deny award
applications that fall under certain restricted categories. Third, as
discussed in the adopting release that accompanied the original
whistleblower rules, whistleblowing is an individual decision that is
generally guided by a complex mix of pecuniary elements and non-
pecuniary

elements.\348\ Individuals who may be concerned with the ease of
responding to award application denials may still come forward and
provide information about possible violations if they are sufficiently
motivated by non-pecuniary elements.
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    \348\ See Securities Whistleblower Incentives and Protections
Adopting Release, 76 FR at 34355, note 433.
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8. Proposed Interpretive Guidance Regarding the Meaning and Application
of ``independent analysis'' as Defined in Exchange Act Rule 21F-4(b)(3)
\349\
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    \349\ 17 CFR 240.21F-4(b)(3).
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    The proposed interpretive guidance helps to clarify the meaning of
``independent analysis'' as that term is defined in Exchange Act Rule
21F-4 and utilized in the definition of ``original information.'' As
discussed earlier, a whistleblower's examination and evaluation of
publicly available information does not constitute ``analysis'' if the
facts disclosed in the public materials on which the whistleblower
relies and in other publicly available information are sufficient to
raise an inference of the possible violations alleged in the
whistleblower's tip. In order for a whistleblower to be credited with
``analysis,'' the whistleblower's examination and evaluation should
contribute ``significant independent information'' that ``bridges the
gap'' between the publicly available information and the possible
securities violations. Assuming that a whistleblower's submission meets
the threshold requirement that it constitutes ``independent analysis,''
for the whistleblower to be eligible for an award the ``information
that . . . is derived from the . . . [whistleblower's] analysis'' must
also be of such high quality that it leads to a successful enforcement
action.
    The interpretive guidance could potentially reduce the
whistleblowing incentives of those individuals who wish to satisfy the
``independent analysis'' prong of the ``original information''
requirement by examining publicly available information and providing
observations that do not go beyond the information itself and
reasonable inferences to be drawn therefrom. In light of the
interpretive guidance, these individuals may decide not to provide such
public information knowing that such information would not be credited
as ``independent analysis'' and therefore not eligible for a
whistleblower award. To the extent that the provision of public
information improves Commission enforcement or otherwise provides a
benefit, any potential reduction in such provision would be a cost
associated with the interpretive guidance. Nevertheless, individuals
who are aware that public information would not be credited with
``independent analysis'' may still come forward and provide public
information to the Commission if they are sufficiently motivated by
non-pecuniary elements.
    The interpretive guidance could increase the whistleblowing
incentives of those individuals who possess ``significant independent
information'' that ``bridges the gap'' between the publicly available
information (and reasonable inferences therefrom) and the conclusion
that possible securities violations are indicated, but may decide
against reporting to the Commission because they do not fully
understand the meaning of ``independent analysis'' in the absence of
the interpretive guidance. To the extent that these individuals come
forward and report such significant independent information to the
Commission in light of the interpretive guidance, the quantity and
quality of reported information might increase, which in turn might
improve the Commission's ability to enforce Federal securities laws,
detect violations and deter potential future violations. Further, the
clarification afforded by the interpretive guidance might also reduce
the number of award applications that are made solely on the basis of
the provision of public information and do not meet the ``independent
analysis'' threshold. To the extent that the number of such claims
declines as a result of the interpretive guidance, staff resources
could be freed up and devoted to processing potentially meritorious
award applications and other work related to the whistleblower program
as discussed earlier.\350\
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    \350\ See supra Sections VII(B)(6) and VII(B)(7).
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C. 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 benefits, costs, and effects
on efficiency, competition, and capital formation. The Commission
believes that the proposed amendments will make incremental changes to
its whistleblower program. Thus, the Commission does not anticipate the
effects on efficiency, competition, and capital formation to be
significant.
    The proposed rules could have a positive indirect impact on
investment efficiency and capital formation by increasing the
incentives of potential whistleblowers to provide information on
possible violations.\351\ Providing such information could increase the
effectiveness of the Commission's enforcement activities More effective
enforcement could lead to earlier detection of violations and increased
deterrence of potential future violations, which should assist in a
more efficient allocation of investment funds. Serious securities
frauds, for example, can cause inefficiencies in the economy by
diverting investment funds from more legitimate, productive uses.\352\
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    \351\ See supra Section VII(B) for a discussion of how proposed
Rules 21F-2(d)(1)(iii), 21F-4(d)(3), 21F-6(c), 21F-8(e), 21F-18, and
the interpretive guidance could increase whistleblowing incentives.
    \352\ See Securities Whistleblower Incentives and Protections
Adopting Release, 76 FR at 34362.
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    Additionally, to the extent that the proposed rules increase
deterrence of potential future violations, investors' trust in the
securities markets would also increase. This increased investor trust
will promote lower capital costs as more investment funds enter the
market, and as investors generally demand a lower risk premium due to a
reduced likelihood of securities fraud.\353\ This, too, should promote
the efficient allocation of capital formation.
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    \353\ See id. note 466, which explains the link between investor
trust in the fairness of the market and capital cost (``If investors
fear theft, fraud, manipulation, insider trading, or conflicted
investment advice, their trust in the markets will be low, both in
the primary market for issuance or in the secondary market for
trading. This would increase the cost of raising capital, which
would impair capital formation--in the sense that it will be less
than it would or should be if rules against such abuses were in
effect and properly enforced and obeyed.''). See also Ko, K. Jeremy,
``Economics Note: Investor Confidence'', October 2017, available at
https://www.sec.gov/files/investor_confidence_noteOct2017.pdf.
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    At the same time, some proposed rules could reduce whistleblowing
incentives in certain cases, although any such reduction in
whistleblowing incentives--to the extent that it occurs--is justified
in light of the positive indirect impact on investment efficiency and
capital formation discussed earlier. Proposed Rule 21F-6(d) could
reduce the whistleblowing incentives of those potential whistleblowers
who anticipate receiving awards in excess of $30 million and make their
reporting decision by trading off the expected size of the award
against the expected costs associated with whistleblowing.\354\
Proposed Rule 21F-8(e) might reduce the whistleblowing incentives of
(i) those individuals who are permanently barred under the proposed
rule from submitting award applications and (ii)

those individuals who have made fewer than three frivolous award
applications. Proposed Rule 21F-18 might reduce the whistleblowing
incentives of those individuals who consider the ease of responding to
award application denials when deciding whether to come forward and
report potential violations. The interpretive guidance might reduce the
whistleblowing incentives of those individuals who wish to rely on the
provision of solely public information to satisfy the ``independent
analysis'' prong of the ``original information'' requirement for a
whistleblower award. These potential reductions in whistleblowing
incentives may be limited for reasons discussed earlier.\355\ Further,
we reiterate our belief that any such reduction in whistleblowing
incentives--to the extent that is occurs--is justified in light of the
positive impact on investment efficiency and capital formation
discussed earlier.
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    \354\ See supra SectionVII(B)(4).
    \355\ See supra Sections VII(B)(4), VII(B)(6), VII(B)(7), and
VII(B)(8).
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    The proposed rules that provide the Commission with additional
considerations for awards may have opposite, albeit indirect, impacts
on investment efficiency and capital formation by potentially altering
the level of monetary incentives that whistleblower would expect at
different recovery levels. On one hand, proposed Rule 21F-6(d) could
reduce the whistleblowing incentives of those individuals who
anticipate receiving awards in excess of $30 million by reducing their
anticipated award to an amount of $30 million or greater; on the other
hand proposed Rule 21F-6(c) could enhance the whistleblowing incentives
of those individuals who anticipate receiving awards below $2 million
by increasing their anticipated award to an amount of up to $2 million.
    The proposed rules could also improve other forms of efficiency.
Proposed Rule 21F-3(b)(4) and proposed Rule 21F-6(d) could foster a
more efficient use of the IPF by avoiding awards that are not
reasonably necessary in light of the whistleblower program's goals and
the interests of investors and the broad public interest. Further,
certain proposed rules could promote efficiency in the processing of
award applications. By permanently barring applicants that make
frivolous or fraudulent award applications, proposed Rule 21F-8(e)
could help free up staff resources that could be used to expedite the
processing of potentially meritorious award applications as well as the
payment of awards. Staff resources that are freed up as a result of
proposed Rule 21F-18 could also expedite the processing of potentially
meritorious award applications. As discussed in Sections VII(B)(6) and
VII(B)(7) above, to the extent that faster award application processing
and award payment motivate whistleblowing, individuals are more likely
to come forward and report potential violations as a result of proposed
Rule 21F-8(e) and proposed Rule 21F-18. To the extent that the proposed
rules promote the timely reporting of possible violations by increasing