[Federal Register Volume 76, Number 113 (Monday, June 13, 2011)]
[Rules and Regulations]
[Pages 34300-34384]
[FR Doc No: 2011-13382]

Vol. 76

Monday,

No. 113

June 13, 2011

Part II

Securities and Exchange Commission

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17 CFR Parts 240 and 249

Securities Whistleblower Incentives and Protections; Final Rule

Federal Register / Vol. 76 , No. 113 / Monday, June 13, 2011 / Rules
and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-64545; File No. S7-33-10]
RIN 3235-AK78

Securities Whistleblower Incentives and Protections

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Final rule.

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SUMMARY: The Commission is adopting rules and forms to implement
Section 21F of the Securities Exchange Act of 1934 (``Exchange Act'')
entitled ``Securities Whistleblower Incentives and Protection.'' The
Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on
July 21, 2010 (``Dodd-Frank''), established a whistleblower program
that requires the Commission to pay an award, under regulations
prescribed by the Commission and subject to certain limitations, to
eligible whistleblowers who voluntarily provide the Commission with
original information about a violation of the Federal securities laws
that leads to the successful enforcement of a covered judicial or
administrative action, or a related action. Dodd-Frank also prohibits
retaliation by employers against individuals who provide the Commission
with information about possible securities violations.

DATES: Effective Date: August 12, 2011.

FOR FURTHER INFORMATION CONTACT: Sean X. McKessy, Securities and
Exchange Commission, Division of Enforcement, 100 F Street, NE.,
Washington, DC 20549, Tel.<PHONE_NUMBER>, Fax<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: We are adopting new rules 21F-1 through 21F-
17, and new Forms TCR and WB-APP, under the Securities Exchange Act of
1934.

Table of Contents

I. Background and Summary
II. Description of the Rules
    A. Rule 21F-1--General
    B. Rule 21F-2--Definition of a Whistleblower
    C. Rule 21F-3--Payment of Award
    D. Rule 21F-4--Other Definitions
    1. Voluntary Submission of Information
    2. Original Information
    3. Definition of Independent Knowledge
    4. Definition of Independent Analysis
    5. Rules 21F-4(b)(i) Through (vi)--Exclusions From Independent
Knowledge and Independent Analysis
    (a) Attorney-client privilege and other attorney conduct
    (b) Responsible Company Personnel, Compliance Processes and
Independent Public Accountants
    (i) Proposed Rule 21F-4(b)(4)(iii)
    (ii) Proposed Rules 21F-4(b)(iv) and (v)
    (iii) Final Rules 21F-4(b)(4)(iii) and (v)
    a. Rules 21F-4(b)(4)(iii)(A) Through (C)
    b. Rule 21F-4(b)(4)(iii)(D)
    c. Rule 21F-4(b)(4)(v)
    (c) Conviction for Violations of Law
    (d) Rule 21F-4(b)(4)(vi)--Information Obtained From Excluded
Persons
    6. Original Source
    7. Original Source; Additional Information
    8. Original Source: Lookback
    9. Information That Leads to a Successful Enforcement
    10. Action
    11. Monetary Sanctions
    12. Appropriate Regulatory Agency
    13. Appropriate Regulatory Authority
    14. SRO
    E. Rule 21F-5--Amount of Award
    F. Rule 21F-6--Criteria for Determining Amount of Award
    G. Rule 21F-7--Confidentiality of Submissions
    H. Rule 21F-8--Eligibility
    I. Rule 21F-9--Procedures for Submitting Original Information
    J. Rule 21F-10--Procedures for Making a Claim Based on a
Successful Commission Action
    K. Rule 21F-11--Procedure for Making a Claim Based on a
Successful Related Action
    L. Rules 21F-12 & 13--Materials That May Be Used as the Basis
for an Award Determination and That May Comprise the Record on
Appeal; Right of Appeal
    M. Rule 21F-14--Procedures Applicable to Payment of Awards
    N. Rule 21F-15--No Amnesty
    O. Rule 21F-16--Awards to Whistleblowers Who Engage in Culpable
Conduct
    P. Rule 21F-17--Staff Communications With Whistleblowers
III. Paperwork Reduction Act
IV. Economic Analysis
V. Regulatory Flexibility Act Certification
VI. Statutory Authority

I. Background and Summary

    Section 922 of Dodd-Frank added new Section 21F to the Exchange
Act, entitled ``Securities Whistleblower Incentives and Protection.''
\1\ Section 21F directs that the Commission pay awards, subject to
certain limitations and conditions, to whistleblowers who voluntarily
provide the Commission with original information about a violation of
the securities laws that leads to the successful enforcement of an
action brought by the Commission that results in monetary sanctions
exceeding $1,000,000.
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    \1\ Public Law 111-203, Sec.  922(a), 124 Stat 1841 (2010).
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    On November 3, 2010, we proposed Regulation 21F to implement new
Section 21F.\2\ The rules contained in proposed Regulation 21F defined
certain terms critical to the operation of the whistleblower program,
outlined the procedures for applying for awards and the Commission's
procedures for making decisions on claims, and generally explained the
scope of the whistleblower program to the public and to potential
whistleblowers.
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    \2\ Proposed Rules for Implementing the Whistleblower Provisions
of Section 21F of the Securities and Exchange Act of 1934, Release
No. 34-63237 (``Proposing Release'').
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    We received more than 240 comment letters and approximately 1300
form letters on the proposal.\3\ Commenters included individuals,
whistleblower advocacy groups, public companies, corporate compliance
personnel, law firms and individual lawyers, academics, professional
associations, nonprofit organizations and audit firms. The comments
addressed a wide range of issues. Many commenters provided views on an
issue we highlighted in the proposing release--the interplay of the
whistleblower program and company internal compliance processes.
Commenters also expressed a range of views on other significant issues,
including the proposed exclusions from award eligibility for certain
categories of individuals or types of information, the availability of
awards to culpable whistleblowers, the procedures for submitting
information and making a claim for an award, and the application of the
statutory anti-retaliation provision.
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    \3\ The public comments we received are available at http://www.sec.gov/comments/s7-33-10/s73310.shtml. In addition, to
facilitate public input on the Dodd-Frank Act, the Commission
provided a series of e-mail links, organized by topic, on its Web
site at http://www.sec.gov/spotlight/regreformcomments.shtml.
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    As discussed in more detail below, we have carefully considered the
comments received on the proposed rules in fashioning the final rules
we adopt today. We have made a number of revisions and refinements to
the proposed rules. Taken together, we believe these changes will
better achieve the goals of the statutory whistleblower program and
advance effective enforcement of the Federal securities laws. The
revisions of each proposed rule are described in more detail throughout
this release, but the following are among the most significant:
     Internal Compliance: A significant issue discussed in the
Proposing Release was the impact of the whistleblower program on
companies' internal compliance processes. While we did not propose a
requirement that whistleblowers report through internal

compliance processes as a prerequisite to eligibility for an award, we
requested comment on this topic, and we included in the proposed rules
several other elements designed to encourage potential whistleblowers
to utilize internal compliance. Commenters were sharply divided on the
issues raised by this topic. After considering these different
viewpoints, we have determined not to include a requirement that
whistleblowers report violations internally, but we have made
additional changes to the rules to further incentivize whistleblowers
to utilize their companies' internal compliance and reporting systems
when appropriate.
    [cir] With respect to the criteria for determining the amount of an
award, the final rules expressly provide: first, that a whistleblower's
voluntary participation in an entity's internal compliance and
reporting systems is a factor that can increase the amount of an award;
and, second, that a whistleblower's interference with internal
compliance and reporting is a factor that can decrease the amount of an
award.
    [cir] The final rules contain a provision under which a
whistleblower can receive an award for reporting original information
to an entity's internal compliance and reporting systems, if the entity
reports information to the Commission that leads to a successful
Commission action. Under this provision, all the information provided
by the entity to the Commission will be attributed to the
whistleblower, which means that the whistleblower will get credit--and
potentially a greater award--for any additional information generated
by the entity in its investigation.
    [cir] The final rule extends the time for a whistleblower to report
to the Commission after first reporting internally and still be treated
as if he or she had reported to the Commission at the earlier reporting
date. We proposed a ``lookback period'' of 90 days after the
whistleblower's internal report, but in response to comments, we are
extending this period to 120 days in the final rules.
     Procedures for Submitting Information and Claims: The
proposed rules set forth a two-step process for submitting information,
which required the submission of two different forms. In response to
comments that urged us to streamline the procedures for submitting
information, we have adopted a simpler process, combining the two
proposed forms into a single Form TCR that would be submitted by a
whistleblower under penalty of perjury. With respect to the claims
application process, we have made one section of that form optional to
make the form less burdensome. We also describe in greater detail below
several other features of the process to assist whistleblowers that we
expect will become part of the Office of the Whistleblower's standard
practice.
     Aggregation of smaller actions to meet the $1,000,000
threshold: The proposed rules stated that awards would be available
only when the Commission had successfully brought a single judicial or
administrative action in which it obtained monetary sanctions of more
than $1,000,000. In response to comments, we have provided in the final
rules that, for purposes of making an award, we will aggregate two or
more smaller actions that arise from the same nucleus of operative
facts. This will make whistleblower awards available in more cases.
     Exclusions from award eligibility for certain persons and
information: The proposed rules set forth a number of exclusions from
eligibility for certain categories of persons and information. In
response to comments suggesting that some of these exclusions were
overly broad or unclear, we have revised a number of these provisions.
Most notably, the final rules provide greater clarity and specificity
about the scope of the exclusions applicable to senior officials within
an entity who learn information about misconduct in connection with the
entity's processes for identifying, reporting, and addressing possible
violations of law.

II. Description of the Rules

A. Rule 21F-1--General

    Rule 21F-1 provides a general, plain English description of Section
21F of the Exchange Act. It sets forth the purposes of the rules and
states that the Commission's Office of the Whistleblower administers
the whistleblower program. In addition, the rule states that, unless
expressly provided for in the rules, no person is authorized to make
any offer or promise, or otherwise to bind the Commission with respect
to the payment of an award or the amount thereof.

B. Rule 21F-2--Definition of a Whistleblower

a. Proposed Rule
    As proposed, Rule 21F-2(a) defined a whistleblower as an individual
who, alone or jointly with others, provides information to the
Commission relating to a potential violation of the securities laws.
Under the proposed rule, a company or another entity could not qualify
as a whistleblower.
    Paragraph (b) of the proposed rule stated that the anti-retaliation
protections set forth in Section 21F(h)(1) of the Exchange Act would
apply irrespective of whether a whistleblower satisfied all the
procedures and conditions to qualify for an award under the
Commission's whistleblower program. Similarly, the protections against
retaliation applied to any individual who provided information to the
Commission about a potential violation of the securities laws.
    Paragraph (c) of the proposed rule stated that, to be eligible for
an award, a whistleblower must submit original information to the
Commission in accordance with all the procedures and conditions
described in Proposed Rules 21F-4, 21F-8, and 21F-9.
b. Comments Received
    Commenters advanced a number of suggestions to refine the
definition of ``whistleblower.'' Many commenters agreed that the
definition of ``whistleblower'' should not turn on whether a violation
of the securities laws is ultimately adjudged to have occurred,\4\ but
expressed differing opinions on our proposal to use the term
``potential violation.'' One commenter agreed that the whistleblower
definition should include the term ``potential violation'' because this
would allow broad application of the anti-retaliation measures in
Section 21F.\5\ Several other commenters recommended that the term
``potential violation'' should be coupled with a requirement that the
individual have a ``reasonable belief'' or ``good faith belief'' that
the information relates to a securities law violation.\6\ Some
commenters suggested instead of the term ``potential violation,'' we
should use the terms ``probable violation,'' ``likely violation,'' or
``claimed violation.'' \7\
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    \4\ See, e.g., letters from Committee on Federal Regulation of
Securities, Section of Business Law, American Bar Association
(``ABA''); Project of Government Oversight (``POGO''); Jones Day;
Wells Fargo Advisors, LLC (``Wells Fargo''); and Society of
Corporate Governance Professionals.
    \5\ See letter from POGO.
    \6\ See, e.g., letters from Jones Day; Wells Fargo; and Morgan
Lewis. As discussed further below in the text, commenters asserted
that a ``reasonable belief'' or ``good faith'' standard is necessary
to prevent employees from making bad-faith allegations of
retaliation.
    \7\ See, e.g., letters from ABA; Goodwin Procter.
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    On other aspects of the definition of whistleblower, one commenter
recommended that we clarify that a ``violation of the securities laws''
relates only to the Federal securities laws and not to violations of
state or foreign

securities laws.\8\ A few commenters recommended that a whistleblower
be limited to a person who provided information relating to a
``material'' violation of the securities laws.\9\
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    \8\ See letter from ABA.
    \9\ See, e.g., letters from ABA; and Society of Corporate
Secretaries and Governance Professionals (``Society of Corporate
Secretaries'').
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    Two commenters disagreed with the proposed rule's limiting
whistleblower status to natural persons,\10\ suggesting that non-
governmental organizations and/or worker representatives, including
labor unions, should be permitted to bring claims.\11\
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    \10\ See, e.g., joint letter from Voices for Corporate
Responsibility, Change to Win, National Employment Lawyers
Association, Government Accountability Project (``VOICES''); and
Mike G. McCluir.
    \11\ See letter from VOICES.
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    A number of commenters responded to our request for comment on
whether we should limit the definition of ``whistleblower'' to a person
who provides information regarding violations of the securities laws
``by another person''--some favoring this,\12\ others opposing it.\13\
Several of the commenters recommended that we limit the whistleblower
definition based on an individual's relative culpability for the
reported violation. For example, some commenters stated that the
definition of ``whistleblower'' should cover only individuals who
report violations by another person, and who did not participate in or
facilitate the violations.\14\
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    \12\ See letters from Chris Barnard; Thompson Hine LLP; William
A. Jacobson, Angel Prado, and Yaozhi Ye (``Cornell Securities Law
Clinic''); Evolution Petroleum Corp.; Securities Industry and
Financial Markets Association (``SIFMA''); The Washington Legal
Foundation; Morgan Lewis; Continewity LLC; Davis Polk & Wardwell LLP
(``Davis Polk''); Oppenheimer Funds.
    \13\ See, e.g., letters from Grohovsky, Vogel, and Lambert
(``Grohovsky Group''); Peter van Schaick.
    \14\ See, e.g., joint letter from Americans for Limited
Government; Ryder Systems, Inc.; Financial Services Institute, Inc.;
U.S. Chamber of Commerce; Verizon; and White & Case, LLP (``Chamber
of Commerce Group'').
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    Commenters made several suggestions relating specifically to the
scope of the anti-retaliation protections. Among other things,
commenters recommended that we expressly state in the rules that the
anti-retaliation provisions do not apply to an individual if (1) he
files a false, fraudulent, or bad faith and meritless submission; \15\
(2) he lacks a good faith or reasonable belief of a violation; \16\ or
(3) the submission does not evince a ``reasonable likelihood of a
violation of securities laws.'' \17\ Another commenter suggested the
anti-retaliation provisions should only apply to those who qualify for
an award.\18\
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    \15\ See, e.g., letters from Connolly & Finkel; National
Association of Corporate Directors (``NACD''); Investment Company
Institute (``ICI''); Valspar; Auditing Standards Committee of the
Auditing Section of the American Accounting Association (``Auditing
Standards Committee''); U.S. Chamber of Commerce Center for Capital
Markets Competitiveness and the U.S. Chamber of Institute for Legal
Reform (``CCMC''); joint letter from General Electric Company,
Google, Inc., Honeywell, Inc., JPMorgan Chase & Co., Microsoft
Corporation and Northrop Grumman Corporation (``GE Group''); Jones
Day; TECO Energy. Two commenters suggested that the Commission
should consider ``whether it can apply additional sanctions'' to any
person who uses the whistleblower process in bad faith.'' See joint
letter from the Financial Services Roundtable and the American
Bankers Association (``Financial Services Roundtable''); letter from
TECO Energy.
    \16\ See letters from Chris Barnard; Paul Hastings.
    \17\ See letter from Goodwin Proctor.
    \18\ See letter from NACD (commenting that not limiting anti-
retaliation protection to those who satisfy the conditions for an
award ``opens the door for employees to submit fake allegations that
may cause reputational harm to the company and/or unfairly embarrass
corporate employees and leadership'').
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    Several commenters proposed that the anti-retaliation provisions
should categorically exempt a company's adverse action against an
employee based on factors other than whistleblower status,\19\ such as
engaging in culpable conduct,\20\ failing to comply with the reporting
requirements of a company's internal compliance programs,\21\ or
violating a professional obligation to hold information in
confidence.'' \22\ One commenter explained that, without a categorical
exemption, the broad anti-retaliation provisions of the statute could
prompt a ``wave of litigation'' alleging retaliation in such
circumstances.\23\
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    \19\ See letters from Thompson Hine; Americans for Limited
Government (``ALG''); AT&T Equal Employment Advisory Council
(``EEAC''); Connolly & Finkel; ICI; GE Group; Society of Corporate
Secretaries; Association of Corporate Counsel; Financial Services
Roundtable; Davis Polk; ABA; joint letter from Allstate Insurance
Company, American Institute of Certified Public Accountants,
American Insurance Association, Americans for Limited Government,
Association of Corporate Counsel, AT&T, Center for Business Ethics,
Dover Corporation, FedEx Corporation, Financial Services Institute,
Inc., Pharmaceutical Research and Manufacturers of America, Retail
Industry Leaders Association, Royal Caribbean Cruises Ltd, Ryder
Systems, Inc., UPS, U.S. Chamber of Commerce, U.S. Chamber of
Commerce Institute for Legal Reform, Verizon and White & Case, LLP
(``Allstate Group'').
    \20\ See letters from ALG; Allstate Group; Morgan Lewis; Davis
Polk; ABA.
    \21\ See letters from Thompson Hine; see also letters from ALG;
Allstate Group; Connolly & Finkel; NACD; TECO Energy; Association of
Corporate Counsel.
    \22\ See letter from the ABA.
    \23\ See letter from ALG; see also letter from Allstate Group.
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    Commenters made a series of other suggestions related to the scope
and enforceability of the anti-retaliation protections, including that
we should: (1) Clarify our authority to bring enforcement actions based
on retaliation; \24\ (2) provide that the anti-retaliation remedies may
not be waived by any agreement, policy, or condition of employment;
\25\ and (3) exclude from anti-retaliation protection employees whose
submissions are based on information that is either publicly
disseminated or which the employee should reasonably know is already
known to the company's board of directors or chief compliance officer,
a court, the Commission or another governmental entity.\26\
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    \24\ Letter from Alex Hoover; see also letters from Bryan
Maloney; National Coordinating Committee for Multiemployer Plans
(``NCCMP'').
    \25\ See letter from Kaiser Saurborn & Mair.
    \26\ See letter from ABA.
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c. Final Rule
    In response to the comments, we have made several changes to the
definition of whistleblower in Rule 21F-2(a) and the application of the
anti-retaliation provisions in Rule 21F-2(b) to more precisely track
the scope of Section 21F(h)(1). We are adopting Rule 21F-2(c) as
proposed, but have re-designated it as Rule 21F-2(a)(2).
    With respect to the definition of whistleblower, we agree with
those commenters who suggested that the term ``potential violation''
may be imprecise, and thus in the final rule have changed this to
``possible violation'' that ``has occurred, is ongoing, or is about to
occur.'' We believe that this modification provides greater clarity
concerning when an individual who provides us with information about
possible violations, including possible future violations, of the
securities laws qualifies as a whistleblower. An individual would meet
the definition of whistleblower if he or she provides information about
a ``possible violation'' that ``is about to occur.''
    Although some commenters recommended that we use the terms
``probable violation'' or ``likely violation,'' we have decided to use
the term ``possible violation.'' In our view, this requires that the
information should indicate a facially plausible relationship to some
securities law violation--frivolous submissions would not qualify for
whistleblower status. We believe that a higher standard requiring a
``probable'' or ``likely'' violation is unnecessary, and would make it
difficult for the staff to promptly assess whether to accord
whistleblower status to a submission.
    In the final rule, the definition of whistleblower clarifies that
the submission must relate to a violation of

the Federal securities laws, or a rule or regulation promulgated by the
Commission. An individual who submits information that relates only to
a state law or foreign law violation would not satisfy the
whistleblower definition.
    The final rule also clarifies that, to qualify as a whistleblower
eligible for the award program and the heightened confidentiality
provisions of Section 21F(h)(2) of the Exchange Act, an individual must
submit his or her information to the Commission in accordance with the
procedures set forth in Rule 21F-9(a).\27\ Rule 21F-9(a) establishes
procedures for an individual to mail, fax, or electronically submit to
us information relating to a possible securities law violation. As
proposed, our definition could have been misconstrued to apply to any
individuals who provide us with information relating to a securities
law violation, including individuals whom we subpoena and law
enforcement personnel from other governmental authorities. This result
would have been outside the intended scope of Section 21F.
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    \27\ The statutory definition of ``whistleblower'' in Section
21F(a)(6) of the Exchange Act provides that the Commission may
``establish by rule or regulation'' the ``manner'' in which an
individual provides the Commission information so as to qualify as a
whistleblower for purposes of the awards program.
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    We have not added a requirement that the information relate to a
``material'' violation of the securities laws. We believe that, rather
than use a materiality threshold barrier that might limit the number of
submissions to us, it is preferable for individuals to provide us with
any information they possess about possible securities violations
(irrespective of whether it appears to relate to a material violation)
and for us to evaluate whether the information warrants action.\28\ To
the extent that commenters advanced this suggestion as a way to prevent
individuals from abusing the anti-retaliation protections afforded by
Section 21F(h) of the Exchange Act, we believe this issue is
sufficiently addressed by the revisions to Rule 21F-2(b), discussed
further below. To the extent that commenters suggested this approach as
a way to reduce frivolous submissions, we believe our use of the term
``possible violation'' sufficiently addresses this concern.
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    \28\ We do not expect potential whistleblowers to make a fact-
dependent materiality assessment.
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    We have decided not to extend the definition of whistleblower
beyond natural persons because we believe that this is consistent with
the statutory definition, which provides that a whistleblower must be
an ``individual.'' The ordinary meaning of ``individual'' is ``natural
person,'' \29\ and nothing in the statutory text or legislative history
suggests a different meaning here. Although one commenter identified a
reference to ``individuals'' in the False Claims Act to argue that the
term should be read to extend beyond natural persons, we note that the
False Claims Act otherwise repeatedly refers to whistleblowers as
``persons'' (which ordinarily extends beyond natural persons),\30\ and
we believe this explains the different result under that Act.\31\
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    \29\ See, e.g., Jove Engineering, Inc. v. I.R.S., 92 F.3d 1539,
1550-51 (11th Cir. 1996) (quoting Black's Law Dictionary 773 (6th
ed. 1996), and Webster's New Collegiate Dictionary 581 (8th ed.
1979)).
    \30\ Compare 31 U.S.C. 3730(e)(4)(B) with id. 3730(b)(1) (``A
person may bring a civil action * * *''), and id. 3730(b)(4)(B)(5)
(``When a person brings an action * * *'').
    \31\ The ABA made several additional recommendations to clarify
and/or narrow the definition of whistleblower. See letter from ABA.
Specifically, the ABA recommended that we: (1) Exclude from the
definition individuals who provide information that is ``clearly
stale (e.g., flawed disclosure in a ten-year old proxy statement);
(2) require as part of the definition that the individual have a
non-speculative ``basis in fact or knowledge'' to support the
potential securities law violation; and (3) exclude from the
definition individuals who provide information that is ``either
publicly disseminated [already] or which the employee should
reasonably know is already known to the company's board of directors
or chief compliance officer, a court or the Commission or another
governmental entity.'' With respect to clearly stale information, we
believe that this is already addressed by the requirement that the
information relate to a ``possible violation,'' because we view this
term as encompassing a requirement that the violation must be
potentially actionable, which would preclude plainly stale
violations. Similarly, we believe that the ``possible violation''
requirement excludes submissions that have no ``basis in fact or
knowledge.'' Finally, rather than addressing in the threshold
definition of whistleblower information that is already publicly
known, we have addressed this issue in Rule 21F-4 in the definition
of ``original information.''
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    We have modified proposed Rule 21F-2(b)'s anti-retaliation
protections, which are now in Rule 21F-2(b)(1). We are also adding Rule
21F-2(b)(2), which expressly states that the Commission may enforce the
anti-retaliation provisions of Section 21F(h)(1) of the Exchange Act
and any rules promulgated thereunder.
    Rule 21F-2(b)(1) provides that, for purposes of the anti-
retaliation protections afforded by Section 21F of the Exchange Act, an
individual is a whistleblower if (i) he possesses a reasonable belief
that the information he is providing relates to a possible securities
law violation (or, where applicable, to a violation of the provisions
set forth in 18 U.S.C. 1514A(a)) that has occurred, is ongoing, or is
about to occur, and (ii) he reports that information in a manner
described in Section 21F(h)(1)(A).
    With respect to the first prong of this standard, the employee must
possess a ``reasonable belief that the information he is providing
relates to a possible securities law violation (or, where applicable,
to a violation of the provisions set forth in 18 U.S.C. 1514A(a)) \32\
that has occurred, is ongoing, or is about to occur.'' The ``reasonable
belief'' standard requires that the employee hold a subjectively
genuine belief that the information demonstrates a possible violation,
and that this belief is one that a similarly situated employee might
reasonably possess.\33\ We believe that requiring a ``reasonable
belief'' on the part of a whistleblower seeking anti-retaliation
protection strikes the appropriate balance between encouraging
individuals to provide us with high-quality tips without fear of
retaliation, on the one hand, while not encouraging bad faith or
frivolous reports, or permitting abuse of the anti-retaliation
protections, on the other.\34\ This approach is consistent with the
approach followed by various courts that have construed the anti-
retaliation provisions of other Federal statutes, including the False
Claims Act,\35\ to

require that a whistleblower have a reasonable belief that he or she is
reporting a violation of that statute even where the statute does not
expressly require such a showing.\36\
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    \32\ This parenthetical reflects the fact that the anti-
retaliation protection afforded by Section 21F(h)(1)(A)(iii)
includes not only reports of securities law violations, but also
various other violations of Federal law (e.g., 18 U.S.C. 1341, 1343,
1344, and 1348).
    \33\ See, e.g., Livingston v. Wyeth, Inc., 520 F.3d 344, 352
(4th Cir. 2008); Clover v. Total Sys. Servs., Inc., 176 F.3d 1346,
1351 (11th Cir. 1999).
    \34\ See, e.g., Parker v. B&O R. Co., 652 F.2d 1012, 1020 (DC
Cir. 1981) (holding, in Title VII retaliation case, that ``[t]he
employer is sufficiently protected against malicious accusations and
frivolous claims by a requirement that an employee seeking the
protection of the opposition clause demonstrate a good faith,
reasonable belief that the challenged practice violates Title
VII''); McDonnell v. Cisneros, 84 F.3d 256, 259 (7th Cir.1996)
(``There is nothing wrong with disciplining an employee for filing
frivolous complaints''); Hindsman v. Delta Airlines, 2010 DOL Ad.
Rev. Bd. 58 LEXIS at *10 (ARB Jun. 30, 2010) (interpreting the anti-
retaliation provisions of the Wendell H. Ford Aviation Investment
and Reform Act, which explicitly excludes frivolous complaints and
those brought in bad faith, as requiring a ``reasonable belief'' by
the whistleblower that the violation of the statute has occurred).
    \35\ See Fanslow v. Chi. Mfg, Ctr., 384 F.3d 469, 480 (7th Cir.
2004) (noting that several circuits had held that the relevant
inquiry to determine whether an employee's actions are protected
under the False Claims Act is whether ``(1) the employee in good
faith believes, and (2) a reasonable employee in the same or similar
circumstances might believe, that the employer is committing fraud
against the government'') (citing Moore v. Cal. Inst. of Tech., Jet
Propulsion Lab, 275 F.3d 838, 845 (9th Cir. 2002); Wilkins v. St.
Louis, 314 F.3d 927, 933 (8th Cir. 2002), and McNeil v. Empl. Sec.
Dep't, 2002 Wash. App. LEXIS 1900, at *15-*16 (Wash. Ct. App. Aug.
9, 2002) (same)).
    \36\ See, e.g., Calhoun v. United States Dep't of Labor (``US
DOL''), 576 F.3d 201, 212 (4th Cir. 2009) (anti-retaliation
provisions of the Surface Assistance Transportation Act); Knox v.
U.S. DOL, 232 Fed. App. 255, 258-59 (4th Cir. 2007) (Clean Air Act);
Williams v. U.S. DOL, 157 Fed. Appx. 575-76 (4th Cir. 2005) (Toxic
Substances Control Act, Solid Waste Disposal Act and Clean Air Act);
see also Vinnett v. Mitsubishi Power Systems, 2010 DOL Ad. Rev. Bd.
LEXIS 69 at *12 (ARB Jul. 27, 2010) (Energy Reorganization Act
requires ``reasonable belief'' of violation); Carter v. Electrical
District No. 2 of Pinal County, 1995 DOL Sec. Labor LEXIS 153 (July
26, 1995) (requiring reasonable belief under anti-retaliation
provisions of environmental statutes). Other anti-retaliation
provisions, such as the anti-retaliation provisions enacted by
Section 806 the Sarbanes-Oxley Act of 2002, expressly contain a
``reasonable belief'' standard. See 18 U.S.C. 1514A(a).
---------------------------------------------------------------------------

    The second prong of the Rule 21F-2(b)(1) standard provides that,
for purposes of the anti-retaliation protections, an individual must
provide the information in a manner described in Section 21F(h)(1)(A).
This change to the rule reflects the fact that the statutory anti-
retaliation protections apply to three different categories of
whistleblowers, and the third category includes individuals who report
to persons or governmental authorities other than the Commission.
Specifically, Section 21F(h)(1)(A)(iii)--which incorporate the anti-
retaliation protections specified in Section 806 of the Sarbanes-Oxley
Act, 18 U.S.C. 1514A(a)(1)(C)--provides anti-retaliation protections
for employees of public companies, subsidiaries whose financial
information is included in the consolidated financial statements of
public companies, and nationally recognized statistical rating
organizations \37\ when these employees report to (i) A Federal
regulatory or law enforcement agency, (ii) any member of Congress or
committee of Congress, or (iii) a person with supervisory authority
over the employee or such other person working for the employer who has
authority to investigate, discover, or terminate misconduct. However,
the retaliation protections for internal reporting afforded by Section
21F(h)(1)(A) do not broadly apply to employees of entities other than
public companies.\38\
---------------------------------------------------------------------------

    \37\ The anti-retaliation protections afforded by Section 806 of
the Sarbanes-Oxley Act have also been read to cover employees of
agents or contractors of public companies in certain situations. See
Klopfenstein v. PCC Holdings Corp, 2006 DOL Ad. Rev. Bd. LEXIS 50
(ARB May 31, 2006) (employee of a private subsidiary of a public
company was covered under Section 806 where private subsidiary acted
at direction of public company in taking adverse action against
complainant); Lawson v. FMR LLC, 724 F. Supp. 2d 167, 169 (D. Mass.
2010) (employees of private investment advisers to investment
companies were covered by Section 806), on appeal, No. 10-2240 (1st
Cir.).
    \38\ In a few limited situations--reporting by employees of
subsidiaries and NRSRO's covered by SOX Section 806, and by
employees whose reports were required or protected under SOX or the
Exchange Act, see Section 21F(h)(1)(A)(iii)--internal reporting is
expressly protected.
---------------------------------------------------------------------------

    In addition, Rule 21F-2(b)(1)(iii) provides that the retaliation
protections apply to a whistleblower irrespective of whether the
whistleblower is ultimately entitled to an award. This provision of the
rule restates a result compelled by the text of Section 21F(h)(1),
which on its face provides retaliation protection to whistleblowers
irrespective of whether they actually collect an award.\39\
---------------------------------------------------------------------------

    \39\ Indeed, providing whistleblowers anti-retaliation
protection only if they ultimately receive an award could unduly
deter whistleblowers from coming forward with information. Under
that approach, a whistleblower would not be protected from
retaliation if he or she had provided accurate information about the
employer's violation, but for some reason no successful Commission
action was brought or the whistleblower was not awarded a payment.
---------------------------------------------------------------------------

    Rule 21F-2(b)(2) states that Section 21F(h)(1) of the Exchange Act,
including any rules promulgated thereunder, shall be enforceable in an
action or proceeding brought by the Commission. Because the anti-
retaliation provisions are codified within the Exchange Act, we agree
with commenters that we have enforcement authority for violations of
Section 21F(h)(1) by employers who retaliate against employees for
making reports in accordance with Section 21F.\40\
---------------------------------------------------------------------------

    \40\ Section 21F(h)(1)(B).
---------------------------------------------------------------------------

    With regard to the other significant comments made regarding the
anti-retaliation provisions in Rule 21F-2(b), for the reasons set forth
below we find that it is either inappropriate or unnecessary to make
the modifications that those commenters recommended. Regarding the
comments that we should categorically provide that employees who make
whistleblower reports to us may be disciplined for reasons independent
of their whistleblowing activities, we think this is unnecessary. By
its terms, the statute only prohibits adverse employment actions that
are taken ``because of'' any lawful act by the whistleblower to provide
information; adverse employment actions taken for other reasons are not
covered. Moreover, there is a well-established legal framework for
making this factual determination on a case-by case basis,\41\ and we
see no indication that Congress intended to depart from this framework
here.\42\
---------------------------------------------------------------------------

    \41\ This framework involves burden-shifting analysis. See, e.g,
Roadway Express, Inc. v. U.S. DOL, 495 F.3d 477, 481-82 (7th Cir.
2007); Scott v. Metropolitan Health Corp., 234 Fed Appx. 341, 346
(6th Cir. 2007) (applying burden shifting analysis to retaliation
claim under the False Claims Act). See generally McDonnell Douglas
Corp. v. Green, 411 U.S. 792 (1973). It provides that (1) the
employee must first make a prima facie case of retaliation (that is,
that he or she engaged in protected activity, has suffered an
adverse employment action, and that the action was causally
connected to the protected activity), (2) the burden then shifts to
the employer to articulate a legitimate, non-retaliatory reason for
its employment decision, after which (3) the burden shifts to the
employee to show that the proffered legitimate reason is in fact a
pretext and that the job action was the result of the defendant's
retaliatory animus. E.g., Collazo v. Bristol-Myers Squibb Mfg, Inc.,
617 F.3d 39, 46 (1st Cir. 2010) (citations and quotations omitted).
While anti-retaliation claims brought under the Sarbanes-Oxley Act
of 2002 (``SOX'') (unlike with Section 21F) are governed by a
slightly different framework, under that framework the determination
of whether an employee was disciplined for retaliatory or legitimate
reasons is likewise a fact-bound inquiry. SOX claims are governed by
the procedures applicable to whistleblower claims brought under the
Wendell H. Ford Aviation Investment and Reform Act for the 21st
Century. See 18 U.S.C. 1514A(b)(2). Under that statute, ``the
employee bears the initial burden of making a prima facie showing of
retaliatory discrimination because of a specific act''; once the
employee makes that showing, ``[t]he burden then shifts to the
employer to rebut the employee's prima facie case by demonstrating
by clear and convincing evidence that the employer would have taken
the same personnel action in the absence of protected activity.''
See Day v. Staples, Inc., 555 F.3d 42, 53 (1st Cir. 2009).
    \42\ We note that where Congress intended to categorically
exclude from anti-retaliation protections of certain statutes those
employees who, without any direction from the employer,
deliberatively committed violations of those statutes, it has
expressly said so. See., e.g., 33 U.S.C. 1367(d) (excluding such
employees from anti-retaliation protections of Federal Water
Pollution Control Act); 15 U.S.C. 2622(e) (TOSCA); 42 U.S.C. 6971(d)
(Solid Waste Disposal Act); 42 U.S.C. 7622(g) (Clean Air Act); 42
U.S.C. 9610(d) (CERCLA); 42 U.S.C. 5851(g) (Energy Reorganization
Act).
---------------------------------------------------------------------------

    With regard to the comment expressing concern that entities might
require employees to waive their anti-retaliation rights under Section
21F, we believe that possibility is foreclosed by the Exchange Act.
Specifically, because Section 21F is codified in the Exchange Act, it
is covered by Section 29(a) of the Exchange Act, which specifically
provides that ``[a]ny condition, stipulation, or provision binding any
person to waive compliance with any provision of this title or any rule
or regulation thereunder * * * shall be void.'' \43\ Thus, under
Section 29(a), employers may not require employees to waive or limit
their anti-retaliation rights under Section 21F.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78cc(a).
---------------------------------------------------------------------------

C. Rule 21F-3--Payment of Award

a. Proposed Rule
    Paragraphs (a) and (b) of Proposed Rule 21F-3 summarized the
statutory

requirements for payment of an award based on a covered action or a
related action. Paragraph (a) stated that, subject to the eligibility
requirements in the Regulation, the Commission will pay an award or
awards to one or more whistleblowers who voluntarily provide the
Commission with original information that leads to the successful
enforcement by the Commission of a Federal court or administrative
action in which the Commission obtains monetary sanctions totaling more
than $1,000,000. Paragraph (b) described the circumstances under which
the Commission would also pay an award to the whistleblower based upon
monetary sanctions that are collected from a ``related action.''
Payment based on the ``related action'' would occur if the
whistleblower's original information led the Commission to obtain
monetary sanctions totaling more than $1,000,000, the related action is
based upon the same original information that led to the successful
enforcement of the Commission action, and the related action is brought
by the Attorney General of the United States, an appropriate regulatory
agency, a self-regulatory organization, or a state attorney general in
a criminal case.
    Paragraph (c) of Proposed Rule 21F-3 explained that the Commission
must determine whether the original information that the whistleblower
gave to the Commission also led to the successful enforcement of a
related action using the same criteria used to evaluate awards for
Commission actions. To help make this determination, the Commission may
seek confirmation of the relevant facts regarding the whistleblower's
assistance from the authority that brought the related action. However,
the proposed rule stated that the Commission would deny an award to a
whistleblower if the Commission determined that the criteria for an
award are not satisfied or if the Commission was unable to obtain
sufficient and reliable information about the related action.
    Paragraph (d) of Proposed Rule 21F-3 provided that the Commission
would not make an award in a related action if an award already has
been granted to the whistleblower by the Commodity Futures Trading
Commission (``CFTC'') for that same action pursuant to its
whistleblower award program under section 23 of the Commodity Exchange
Act.\44\ Proposed Rule 21F-3(d) also provided that, if the CFTC has
previously denied an award in a related action, the whistleblower will
be collaterally estopped from relitigating any issues before the
Commission that were necessary to the CFTC's denial.
---------------------------------------------------------------------------

    \44\ See 7 U.S.C. 26.
---------------------------------------------------------------------------

b. Comments Received
    We received a few comments on the proposed rule's treatment of
related actions.
    One commenter objected to paragraph (c) to the extent that it would
preclude a recovery in situations where the Commission is unable to
obtain sufficient and reliable information about the related action to
make a conclusive determination of the whistleblower's contribution to
the success of the related action, suggesting instead that the rule
include a mechanism for inter-agency coordination to allow the
Commission to understand the whistleblower's contribution to the
related action.\45\ Another commenter challenged paragraph (c) because
it would preclude an award for a whistleblower in situations where the
Department of Justice or another entity pursues a successful action
based on a whistleblower's tip that the Commission forwarded, but the
Commission does not bring an enforcement action.\46\
---------------------------------------------------------------------------

    \45\ See letter from VOICES.
    \46\ See letter from Stuart D. Meissner, LLC.
---------------------------------------------------------------------------

    With respect to proposed paragraph (d) and the overlap with CFTC
actions, one commenter commended the Commission for clarifying that the
Commission will not make an award in a related action if the CFTC has
already made an award to the whistleblower on that action,\47\ while
another acknowledged that there should not be double recoveries, but
stated that there should be no automatic rule that would bar rewards
because the interaction of the Commission and CFTC programs can be
adjudicated on a case-by-case basis.\48\
---------------------------------------------------------------------------

    \47\ See letter from Society of Corporate Secretaries.
    \48\  See letter from the National Whistleblowers Center
(``NWC'').
---------------------------------------------------------------------------

c. Final Rule
    After reviewing the comments, we have decided to adopt Rule 21F-3
substantially as proposed.\49\ With respect to related actions, we do
not believe that inter-agency coordination can always ensure that the
Commission will obtain ``sufficient and reliable information'' about a
whistleblower's contribution to the success of a related action, and
thus we continue to believe that there is a need for paragraph
(b)(2).\50\ We have not modified the rule to permit a whistleblower to
recover in a related action absent a successful Commission action,
because the statute expressly requires a successful Commission action
before there can be a ``related action'' upon which a whistleblower may
recover.\51\
---------------------------------------------------------------------------

    \49\ In the final rule, we have grouped proposed paragraphs (b)-
(d) together under the heading ``related actions,'' and renumbered
these paragraphs (b)(1)-(b)(3), respectively. We have also changed
the term ``appropriate regulatory agency'' to ``appropriate
regulatory authority'' to more closely comport with the terms of
Section 21F and to clarify that our rules regarding payment for
awards in connection with related actions govern actions brought by
other agencies, not Commission actions. See discussion below under
Rule 21F-4(g).
    \50\ In cases where the Commission coordinates closely with an
entity that ultimately brings a related action, we anticipate that
Commission staff will know and will be able to provide information
about the whistleblower's contribution to the coordinated efforts.
We have added a reference to new Rule 21F-12(a)(5) which provides
that neither the Commission nor the Claims Review Staff is permitted
to rely upon any information received from the entity that brought
the related action if the entity has precluded us from also sharing
that information with a claimant. The reference to Rule 21F-12(a)(5)
makes clear that if the Commission is unable to receive sufficient
and reliable information that is available for the claimant's
review, the Commission will deny the claimant's related-action award
request.
    \51\ See Section 21F(a)(5) of the Exchange Act, 15 U.S.C. 78u-
6(a)(5) (related action must be ``based upon the original
information * * * that led to the successful enforcement of the
Commission action'').
---------------------------------------------------------------------------

    With respect to the interrelation with CFTC actions, we are
adopting the rule substantially as proposed because it provides
claimants with a clear statement of how the Commission will address any
issues that arise where a claimant pursues either a double recovery or
a ``second bite at the apple'' by filing an application for an award on
a related action after having already pursued an award on the same
action under the CFTC's whistleblower awards program.\52\ Our Proposing
Release had included the qualification that the issue must have been
``necessary'' to the CFTC's determination, but we believe this
requirement would have introduced unwarranted disputes over whether a
particular issue was actually necessary. Therefore, we have made a
slight modification to provide that the CFTC need only have decided the
issue against the award claimant.
---------------------------------------------------------------------------

    \52\ Several comment letters suggested that a qui tam action
under the False Claims Act, 31 U.S.C. 3729 et seq, could qualify as
a ``related action.'' See, e.g., letter from VOICES. This is not
correct. A qui tam action is not brought by the Attorney General of
the United States as is required under the definition of ``related
action'' in Section 21F(a)(5) of the Exchange Act. In a qui tam
action, the relator ``bring[s]'' the action ``in the name of the
Government,'' see Vermont Agency of Natural Resources v. United
States ex rel. Stevens, 529 U.S. 765, 769 (2000), and thereafter the
Attorney General may ``elect to intervene and proceed with the
action,'' 31 U.S.C. 3730(b)(2), 3730(b)(4). Moreover, given that
Congress has specifically provided a 15-30% award for successful qui
tam plaintiffs, see 31 U.S.C. 3730(d)(1)-(2), we do not believe
Congress intended Section 21F of the Exchange Act to permit
additional recovery for the same action above what it specified in
the False Claims Act.

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

D. Rule 21F-4--Other Definitions

    Although the statute defines several relevant terms, Rule 21F-4
defines other terms that are important to understanding the scope of
the whistleblower award program, in order to provide greater clarity
and certainty about the operation and scope of the program.
1. Rule 21F-4(a)--Voluntary submission of information
a. Proposed Rule
    Under Section 21F(b)(1) of the Exchange Act,\53\ whistleblowers are
eligible for awards only when they ``voluntarily'' provide original
information about securities violations to the Commission. Proposed
Rule 21F-4(a)(1) defined a submission as made ``voluntarily'' if a
whistleblower provided the Commission with information before receiving
any request, inquiry, or demand from the Commission, Congress, any
other Federal, state or local authority, any self-regulatory
organization, or the Public Company Accounting Oversight Board about a
matter to which the information in the whistleblower's submission was
relevant. The proposed rule covered both formal and informal requests.
Thus under the proposed rule, a whistleblower's submission would not be
considered ``voluntary'' if the whistleblower was contacted by the
Commission or one of the other authorities first, whether or not the
whistleblower's response was compelled by subpoena or other applicable
law.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78u-6(b)(1).
---------------------------------------------------------------------------

    As our Proposing Release explained, this approach was intended to
create a strong incentive for whistleblowers to come forward early with
information about possible violations of the Federal securities laws,
rather than wait to be approached by investigators. For the same
reasons, Proposed Rule 21F-4(a)(2) provided that a whistleblower's
submission of documents or information would not be deemed
``voluntary'' if the documents or information were within the scope of
a prior request, inquiry, or demand to the whistleblower's employer,
unless the employer failed to make production to the requesting
authority in a timely manner.
    Proposed Rule 21F-4(a)(3) provided that a submission also would not
be considered ``voluntary'' if the whistleblower was under a pre-
existing legal or contractual duty to report the securities violations
to the Commission or to one of the other designated authorities.
b. Comments Received
    Commenters had diverse perspectives on our proposal to require that
whistleblowers come forward before they receive either a formal or
informal request or demand from the Commission or one of the other
designated authorities about any matter relevant to their submission.
Some commenters believed that our proposed rule was too restrictive.
For example, one commenter urged that all information provided by a
whistleblower should be treated as ``voluntary'' until the
whistleblower is testifying under compulsion of a subpoena.\54\ Another
commenter suggested that persons who are first contacted by an
authority should remain eligible for awards if they provide information
about transactions or occurrences beyond the specific parameters of the
request.\55\ A third commenter expressed concern that our proposed rule
could have the effect of barring whistleblowers in cases where the
whistleblower's information is arguably ``relevant'' to a general
informational request from an authority, even though the authority is
not focused on the issue on which the whistleblower might report.\56\
---------------------------------------------------------------------------

    \54\ See letter from NWC.
    \55\ See letter from Bijan Amini.
    \56\ See letter from Taxpayers Against Fraud (``TAF''). As an
example, this commenter pointed out that a request by a municipal
bond issuer for completed transaction documents from a Guaranteed
Investment Contract (``GIC'') provider could be interpreted to
preclude a ``voluntary'' submission of whistleblower allegations
that the GIC provider engaged in bid rigging.
---------------------------------------------------------------------------

    Other commenters took the view that our proposed rule did not go
far enough in precluding whistleblower submissions from being treated
as ``voluntary.'' A number of commenters urged that our rules also
preclude an individual from making a ``voluntary'' submission after the
individual has been contacted for information in the course of a
company's internal investigation or other internal review.\57\ In
response to one specific request for comment, other commenters
advocated that we not treat a submission as ``voluntary'' if the
whistleblower was aware of a governmental or internal investigation at
the time of the submission, whether or not the whistleblower received a
request from the Commission or one of the other authorities.\58\
---------------------------------------------------------------------------

    \57\ See letters from CCMC; Jones Day; and GE Group (arguing
that a person who is questioned by an employer about a matter should
not be permitted subsequently to become a whistleblower unless he or
she provided the employer substantially the same information in
response to the employer's questioning).
    \58\ See letters from ABA, Wells Fargo, and the National Society
of Compliance Professionals (``NSCP'').
---------------------------------------------------------------------------

    Our request for comment on whether a whistleblower's submission
should be deemed to be ``voluntary'' if the information was within the
scope of a previous request to the whistleblower's employer (Proposed
Rule 21F-4(a)(2)) also generated diverse reactions. Some commenters
urged that we eliminate this provision because it could have a sweeping
effect in cutting off large numbers of potential whistleblowers, in
particular in industry-wide investigations.\59\ Other commenters
supported the exclusion and suggested that it be expanded in various
ways.\60\
---------------------------------------------------------------------------

    \59\ See letters from Section on Corporation, Finance and
Securities Law of the District of Columbia Bar (``DC Bar''), Daniel
J. Hurson, Continewitty LLC.
    \60\ See letters from SIFMA (urging elimination of the exception
that would permit an employee to make a voluntary submission if the
employer did not produce the documents or information in a timely
manner), Wells Fargo (same); NCSP (employee should be regarded as
having received a request to an employer if there is a reasonable
likelihood that the employee would have been contacted by the
employer in responding to the request); and the Institute of
Internal Auditors (should expand exclusion to other persons within
the scope of a request, such as contractors, agents, and service
providers).
---------------------------------------------------------------------------

    Our proposed rule to preclude whistleblowers from acting
``voluntarily'' if they are under a pre-existing legal or contractual
duty to report the violations to the Commission or another authority
(Proposed Rule 21F-4(a)(3)) also generated varied comment. Some
commenters opposed the exclusion on the grounds that Section 21F(c)(2)
of the of the Exchange Act sets forth a specific list of persons whom
Congress deemed to be ineligible for awards, some as a result of their
pre-existing duties.\61\ These commenters urged that the Commission
should not expand these exclusions, as doing so would be inconsistent
with Congressional intent and would undermine the purposes of Section
21F.\62\ One of these commenters asserted, for example, that the
proposed rule could result in barring submissions from individual
employees if regulators require companies under their

jurisdiction to report violations of law, and could also preclude
submissions from some senior corporate managers who are obligated under
Federal procurement regulations to report violations of various Federal
criminal laws, False Claims Act violations and overpayments on
government contracts to agency inspectors general and to contracting
officers.\63\ This same commenter also expressed concern that the
Commission should not be in a position of having to decide whether
whistleblowers from within state or municipal corporations have pre-
existing obligations to report violations.
---------------------------------------------------------------------------

    \61\ Section 21F(c)(2), 15 U.S.C. 78u-6(c)(2), sets forth four
categories of individuals who are ineligible for whistleblower
awards. These include employees of the Commission and of certain
other authorities, persons who are convicted of a criminal violation
in relation to action for which they would otherwise be eligible for
an award, auditors in cases where a submission would be contrary to
the requirements of Section 10A of the Exchange Act, and persons who
fail to submit information in the form required by the Commission's
rules.
    \62\ See letters from NWC; Stuart D. Meissner, LLC; NCCMP; DC
Bar; and Daniel J. Hurson.
    \63\ See letter from the DC Bar, citing 73 FR 67064 (December
2008).
---------------------------------------------------------------------------

    Other commenters favored the ``legal duty'' exclusion and
recommended that its reach be clarified and extended. In particular,
these commenters suggested that the exclusion should be applied to
various categories of individuals in the corporate context. Several
commenters urged that we not consider submissions to be ``voluntary''
in circumstances where an employee or an outside service provider has a
duty to report misconduct to a company.\64\ Another commenter suggested
that a company's principal financial officer, principal executive
officer, senior management, audit committee, and board of directors
should be viewed as having a legal duty to report violations to the
government because of the officer certification requirements of Section
302 of the Sarbanes-Oxley Act, and the provisions regarding reporting
of illegal acts under Section 10A of the Exchange Act.\65\
---------------------------------------------------------------------------

    \64\ See letters from NSCP and from Financial Services
Roundtable.
    \65\ 15 U.S.C. 78j-1; see letter from the Cornell Securities Law
Clinic.
---------------------------------------------------------------------------

    Our request for comment concerning whether the ``legal duty''
limitation on voluntary submissions should apply to all government
employees prompted a number of responses. Some commenters appeared to
take the view that government employees who are involved in law
enforcement or the regulation of business or financial services should
be deemed to have a legal duty to report violations.\66\ Other
commenters indicated that government employees should be viewed as
having a duty to report violations that they uncover in the course of
their official duties.\67\
---------------------------------------------------------------------------

    \66\ See letters from Patrick Burns, ICI, Auditing Standards
Committee, and TRACE International, Inc.
    \67\ See letters from the NACD and Grohovsky Group. See also
letter from the Institute of Internal Auditors (``a general
preclusion of government employees would be appropriate.'').
---------------------------------------------------------------------------

    Finally, most commenters who responded to our request for comment
on whether the list of other authorities in the rule should include
foreign authorities stated that foreign authorities should be
included.\68\ Two commenters argued against this approach. One of these
emphasized that the Commission cannot be assured that all foreign
authorities will share information they may obtain concerning possible
violations of U.S. securities laws, and that it would be difficult for
the Commission in many instances to determine whether an individual
owed a legal duty under foreign law to report a violation to a foreign
authority.\69\ Another similarly argued that the fact that a
whistleblower received a request from a foreign authority would not
compel the whistleblower to provide the information to the
Commission.\70\
---------------------------------------------------------------------------

    \68\ See letters from Auditing Standards Committee; NSCP;
Continewity, LLC; Society of Corporate Secretaries; Institute of
Internal Auditors.
    \69\ See letter from Georg Merkl.
    \70\ See letter from VOICES.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we have decided to adopt the rule
with certain modifications. Although we continue to believe that a
requirement that the whistleblower come forward before being contacted
by government investigators is both good policy and consistent with
existing case law from related areas,\71\ we agree with the concerns
expressed by some commenters that our proposed rule might have the
unintended result of deterring high-quality submissions as a threshold
matter based on an overly-broad construction of the concept of
voluntariness. In response to this concern, we have made several
changes to the final rule.
---------------------------------------------------------------------------

    \71\ Cf. Barth v. Ridgedale Electric, Inc., 44 F.3d 699 (8th
Cir. 1994); United States ex rel. Paranich v. Sorgnard, 396 F.3d 326
(3d Cir. 2005) (rejecting argument that information provided beyond
that required by subpoena is voluntary for purposes of False Claims
Act); United States ex rel. Fine v. Chevron, USA, Inc., 72 F.3d 740
(9th Cir. 1995), cert. denied, 517 U.S.1233 (1996) (rejecting
argument that provision of information to the Government is always
voluntary unless compelled by subpoena).
---------------------------------------------------------------------------

    As adopted, paragraph (1) of Rule 21F-4(a) now provides that a
submission of information is deemed to have been made ``voluntarily''
if the whistleblower makes his or her submission before a request,
inquiry, or demand that relates to the subject matter of the submission
is directed to the whistleblower or anyone representing the
whistleblower (such as an attorney) (i) By the Commission; (ii) in
connection with an investigation, inspection, or examination by the
Public Company Accounting Oversight Board (``PCAOB'') or any self-
regulatory organization; \72\ or (iii) in connection with an
investigation by Congress, any other authority of the Federal
government, or a state Attorney General or securities regulatory
authority.
---------------------------------------------------------------------------

    \72\ The term ``self-regulatory organization'' is defined in
Rule 21F-4(h).
---------------------------------------------------------------------------

    Thus, rather than apply to all information requests of any kind, as
was proposed, our final rule narrows the types of requests that that
may preclude a later whistleblower submission from being treated as
``voluntary.'' All requests from the Commission are still covered, as
we believe that a whistleblower award should not be available to an
individual who makes a submission after first being questioned about a
matter (or otherwise requested to provide information) by the
Commission staff acting pursuant to any of our investigative or
regulatory authorities. Only an investigative request made by one of
the other designated authorities will trigger application of the rule,
except that a request made in connection with an examination or
inspection, as well as an investigative request, by staff of the PCAOB
or a self-regulatory organization will also render a whistleblower's
subsequent submission relating to the same subject matter not
``voluntary.'' This provision recognizes the important relationship
that frequently exists between examinations and enforcement
investigations, as well as our regulatory oversight of the PCAOB and
self-regulatory organizations. However, the rule only precludes a
whistleblower from making a ``voluntary'' submission if a previous
request, as described, was directed to the whistleblower or to his or
her personal representative. For example, an examination request
directed to a broker-dealer or an investment adviser would not
automatically foreclose whistleblower submissions related to the
subject matter of the exam from all employees of the entity. However,
if a firm employee were interviewed by examiners, the employee could
not later make a ``voluntary'' submission related to the subject matter
of the interview.\73\
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    \73\ As is further discussed below, individuals who wait to make
their submission until after a request is directed to their employer
will not face an easy path to an award. We expect to scrutinize all
of the attendant circumstances carefully in determining whether such
submissions ``significantly contributed'' to a successful
enforcement action under Rule 21F-4(c)(2) in view of the previous
request to the employer on the same or related subject matter.
---------------------------------------------------------------------------

    We have also narrowed the list of authorities set forth in the rule
by limiting state and local authorities to state Attorneys General and
state securities regulatory authorities.

Accordingly, whistleblowers will have the opportunity to submit
information to the Commission ``voluntarily'' even after they receive
requests from other state and local authorities. This change recognizes
the fact that the Commission less regularly receives information
through cooperative arrangements with state and local authorities other
than state Attorneys General and state securities regulatory
authorities.\74\
---------------------------------------------------------------------------

    \74\ We have also determined not to expand the list of
authorities in Rule 21F-4(a) to include foreign authorities. Foreign
authorities operate under different legal regimes, with different
standards. Further, as some commenters pointed out, whether and
under what circumstances the Commission may receive information
obtained by a foreign authority is more uncertain than is the case
of other Federal authorities, and state Attorneys General or
securities regulators. In addition, we may have limited ability to
evaluate the scope of a request from a foreign authority to an
individual, and whether it relates to the subject matter of the
individual's whistleblower submission. We note, however, that in
cases where we request the assistance of a foreign authority to
obtain documents or information through a memorandum of
understanding, and the foreign authority sends a corresponding
request to one of its country's residents, we will treat the request
as coming from us for purposes of our rule, with the result that a
subsequent whistleblower submission on the same subject matter from
the foreign resident will not be treated as ``voluntary.''
---------------------------------------------------------------------------

    As adopted, our rule retains the provision (now placed in a newly-
designated paragraph (2)) that a whistleblower who receives a request,
inquiry, or demand as described in paragraph (1) first will not be able
to make a subsequent ``voluntary'' submission of information that
relates to the subject matter of the request, inquiry, or demand, even
if a response is not compelled by subpoena or other applicable law.\75\
We believe that this approach strikes an appropriate balance between,
on the one hand, permitting any submission to be considered
``voluntary'' as long as it is not compelled, and, on the other hand,
precluding a submission from being treated as ``voluntary'' whenever a
whistleblower may have become ``aware of'' an investigation or other
inquiry covered by the rule, regardless of whether the relevant
authority contacted the whistleblower for information. A standard based
on the receipt of a subpoena would go too far in permitting individuals
to claim whistleblower awards even after being directly asked about
conduct by staff of the Commission or other authorities. We do not
believe either that Congress intended this result, or that it is
suggested by existing law.\76\ Conversely, a rule that prohibited a
whistleblower from acting ``voluntarily'' any time the whistleblower
became aware of an investigation or other inquiry covered by the rule
is overly inclusive because the subject of the inquiry may not be clear
to potential whistleblowers with valuable information or these
potential whistleblowers may not be known to the Commission.
Accordingly, such an interpretation of ``voluntary'' is likely to have
a negative impact on our Enforcement program by reducing the
opportunities for us to receive high-quality, valuable information in
many circumstances.\77\ Such a rule would create the difficult problem
of determining whether a whistleblower was actually aware of an
investigation or other inquiry before he or she came forward.
---------------------------------------------------------------------------

    \75\ One commenter asked us to clarify that, after a
whistleblower makes an initial voluntary submission, if the staff
subsequently contacts the whistleblower and requests additional
information, any information so provided will be eligible for an
award. See letter from Stuart D. Meissner, LLC. While we agree that
this should ordinarily be the case with respect to routine follow-up
communications with most whistleblowers, there may be circumstances
where the whistleblower's additional provision of information would
not be deemed voluntary. For example, if the whistleblower only
provides us with more detailed information pursuant to a cooperation
agreement with the Department of Justice, we would not view the
whistleblower as having ``voluntarily'' provided all of the
subsequent information. In addition, potential whistleblowers are
cautioned that Rule 21F-8(b) requires, as a condition of award
eligibility, that a whistleblower provide the staff with all
additional information in the whistleblower's possession that is
related to the subject matter of the whistleblower's submission in a
complete and truthful manner.
    \76\ One commenter expressed concern that many employees are
required to sign confidentiality agreements that may prevent them
from providing information to the Commission without a subpoena. See
letter from David Sanford. We caution employers that, as adopted,
Rule 21F-17(a) provides that no person may take any action to impede
a whistleblower from communicating directly with the Commission
about a possible securities law violation, including by enforcing or
threatening to enforce a confidentiality agreement. Further, Section
21F(h)(1)(A) of the Exchange Act prohibits any form of retaliation
by an employer against a whistleblower because of any lawful act
done by the whistleblower in providing information to the Commission
in accordance with Section 21F. 15 U.S.C. 78u-6(h)(1)(A)(i).
    \77\ For example, an individual who becomes aware of an
investigation and who has valuable information or documents to offer
may not, in the ordinary course, be approached by investigators.
This is particularly likely to be the case if the individual is not
directly or indirectly involved in the conduct under investigation.
We do not believe that it would be appropriate to adopt a definition
of ``voluntary'' that might prevent such individuals from coming
forward and assisting our staff as whistleblowers.
---------------------------------------------------------------------------

    For similar reasons, we reject the suggestion of some commenters
that a whistleblower should not be permitted to make a ``voluntary''
submission after being contacted for information in the course of an
internal investigation. Elsewhere in our rules, we have attempted to
create strong incentives for employees to continue to utilize their
employers' internal compliance and other processes for receiving and
addressing reports of possible violations of law. If a whistleblower
took any steps to undermine the integrity of such systems or processes,
we will consider that conduct as a factor that may decrease the amount
of any award.\78\ However, a principal purpose of Section 21F is to
promote effective enforcement of the Federal securities laws by
providing incentives for persons with knowledge of misconduct to come
forward and share their information with the Commission. Although we
acknowledge that internal investigations can be an important component
of corporate compliance, and although there are existing incentives for
companies to self-report violations,\79\ providing information to
persons conducting an internal investigation, or simply being contacted
by them, may not, without more, achieve the statutory purpose of
getting high-quality, original information about securities violations
directly into the hands of Commission staff.
---------------------------------------------------------------------------

    \78\ See Rule 21F-6(b)(3).
    \79\ See Report of Investigation Pursuant to Section 21(a) of
the Securities Exchange Act of 1934 and Commission Statement on the
Relationship of Cooperation to Agency Enforcement Decisions,
Exchange Act Release No. 44969 (Oct. 23, 2001); U.S. Sentencing
Guidelines Sec.  8C2.5.
---------------------------------------------------------------------------

    As noted, paragraph (1) of Rule 21F-4(a) provides that a
whistleblower submission will not be deemed ``voluntary'' if made after
we or another of the designated authorities have already contacted the
whistleblower (or his or her representative) with an investigative or
other covered request, inquiry, or demand that ``relates to the subject
matter'' of the submission. This language is intended to provide
clearer guidance than use of the word ``relevant'' in the proposed
rule. The determination of whether an inquiry ``relates to the subject
matter'' of a whistleblower's submission will depend on the nature and
scope of the inquiry and on the facts and circumstances of each case.
Generally speaking, however, we will consider this test to be met--and
therefore the whistleblower's submission not to be ``voluntary''--even
if the submission provides more information than was specifically
requested, if it only describes additional instances of the same or
similar conduct, provides additional details, or describes other
conduct that is closely related as part of a single scheme. For
example, if our staff sends an individual an investigative request
relating to a possible fraudulent accounting practice, we would
ordinarily not expect to treat as ``voluntary'' for purposes of Rule
21F-

4(a) a subsequent whistleblower submission from the same individual
that describes additional instances of the same practice, or a
different but related practice as part of an overall earnings
manipulation scheme.\80\ However, the individual could still make a
``voluntary'' submission that described other, unrelated violations
(e.g., Foreign Corrupt Practices Act violations).\81\
---------------------------------------------------------------------------

    \80\ This is a separate analysis from the question of whether
information will be deemed to have ``led to'' a successful
Commission enforcement action. As is discussed below, even after we
have commenced an investigation or an examination, a whistleblower
who voluntarily submits original information may be eligible for an
award if the information significantly contributes to the success of
our action. See Rule 21F-4(c)(2).
    \81\ We have also added to paragraph (2) a statement that a
whistleblower's submission of information to the Commission will be
considered ``voluntary'' if the whistleblower voluntarily provided
the same information to one of the other authorities identified in
the rule prior to receiving a request, inquiry, or demand from the
Commission. This language is intended to respond to comments that,
as proposed, our rule could have had the unintended consequence of
precluding a submission from being considered as ``voluntary'' in
circumstances where the whistleblower provided the information to
another authority, the other authority referred the matter to the
Commission, and our staff contacted the whistleblower before he or
she had the opportunity to file a whistleblower submission with us.
See letter from Grohovsky Group.
---------------------------------------------------------------------------

    In further consideration of the views expressed that our proposed
rule was overly-broad, and could result in precluding too many
potential whistleblowers (e.g., in industry-wide investigations), we
have decided not to adopt a rule that would treat a request to an
employer as directed as well to all employees whose documents or
information fall within the scope of the request. (This provision was
found in paragraph (2) of Proposed Rule 21F-4(a), and is not part of
final Rule 21F-4(a).) \82\ As a commenter stated, establishing this
requirement as a threshold barrier to submissions could effectively
``shut down'' our whistleblower program because ``any relevant
documents or information would almost certainly be covered by an even
marginally comprehensive investigative request.'' \83\ Thus, only a
request that is directed to the individual involved (or to his or her
representative) will preclude that individual from subsequently making
a ``voluntary'' submission of the requested information or closely
related information. We note, however, that as part of our
determination of whether a submission leads to a successful enforcement
action under Rule 21F-4(c), we expect to evaluate whether a previous
request to the whistleblower's employer obtained substantially the same
information, or would have obtained the information but for any action
of the whistleblower in not providing the information to his or her
employer. In such circumstances, we ordinarily would not expect to
treat the whistleblower's submission as having ``significantly
contributed'' to the success of our action for purposes of Rule 21F-
4(c)(2).
---------------------------------------------------------------------------

    \82\ This would include requests that are directed to a specific
office or function of an employer where the whistleblower works.
    \83\ See letter from DC Bar.
---------------------------------------------------------------------------

    We have also decided to revise our proposed requirement that a
submission will not be considered ``voluntary'' if the whistleblower is
under a pre-existing legal or contractual duty to report the
information to the Commission or to any of the other authorities
designated in the rule. As adopted, Rule 21F-4(a)(3) provides that a
whistleblower cannot ``voluntarily'' submit information if the
whistleblower is required to report his or her original information to
the Commission as a result of a pre-existing legal duty,\84\ a
contractual duty that is owed to the Commission or to one of the other
authorities set forth in paragraph (1), or a duty that arises out of a
judicial or administrative order.
---------------------------------------------------------------------------

    \84\ Although in certain circumstances auditors have pre-
existing legal duties to report information about securities law
violations to the Commission, for purposes of these rules, an
auditor's eligibility for a whistleblower award will not be
addressed under this rule, but will be addressed under Rules 21F-
4(b)(4)(iii) and (v) and Rule 8(c)(4).
---------------------------------------------------------------------------

    Unlike in the proposed rule, the final rule provides that a duty to
report information only to an authority other than the Commission does
not result in exclusion of the whistleblower.\85\ We have narrowed the
reach of this provision out of concern that, as proposed, it was
potentially vague and overbroad. Without a clearer and more specific
description of the types of duties owed to these other authorities that
might preclude a submission, the proposed rule could have the
unintended consequence of discouraging some meritorious whistleblowers.
In addition, we have adopted exclusions for specific types of
individuals based on the definition of ``independent knowledge'' under
Rule 21F-4(b)(4). Consistent with our approach of applying potential
threshold exclusions narrowly, we intend this exclusion to govern only
in cases where a whistleblower has an individual duty to report to the
Commission, and not in cases where the duty belongs to the
whistleblower's employer.
---------------------------------------------------------------------------

    \85\ As noted above, some commenters objected to the proposed
rule on the grounds that Congress expressly only declared certain
categories of whistleblowers to be ineligible as a result of their
pre-existing legal duties. However, Congress did not define the term
``voluntarily'' as used in Section 21F, instead leaving it to the
Commission to interpret this term and others in a manner that
furthers the statutory purposes. See Section 21F(j), 15 U.S.C. 78u-
6(j).
---------------------------------------------------------------------------

    Although this determination of ``voluntariness'' turns on whether
the whistleblower is under a duty to report information to the
Commission, the duty to report to the Commission can arise from a
contract with either the Commission or with one of the other
authorities identified in the rule. Thus, the rule would not consider
as ``voluntary'' disclosures made by an individual who has entered into
a cooperation or similar agreement with another authority, such as the
Department of Justice, which requires the individual to cooperate with
or provide information to the Commission, or more generally to
government agencies. Further, the requirement that the contractual duty
be owed to the Commission or to one of the other authorities means that
whistleblowers will not be precluded from award eligibility if they are
subject to a contractual duty to report information to the Commission
because of an agreement with a third party. In other words, submissions
from such whistleblowers will be treated as ``voluntary,'' assuming
that the other requirements of this rule are satisfied. This
clarification responds to the concerns of some commenters that
employers should not be able to preclude their employees from
whistleblower eligibility by generally requiring all employees to enter
into agreements that they will report evidence of securities violations
directly to the Commission.\86\
---------------------------------------------------------------------------

    \86\ See letters from Stuart D. Meissner and Georg Merkl.
---------------------------------------------------------------------------

    The rule also provides that a whistleblower submission will not be
treated as ``voluntary'' if the whistleblower had a duty arising out of
a judicial or administrative order to report the information to the
Commission. This language covers persons such as independent monitors
or consultants who may be appointed or retained as a result of
Commission or other proceedings with a requirement that they report
their findings, conclusions, or other information to the Commission.
    Finally, this rule will not apply to an employee or a third party
who has a duty of some kind to report misconduct to a company, as we
believe that a wholesale exclusion of whistleblower submissions in such
cases would not effectuate the purposes of Section 21F.

2. Rule 21F-4(b)--Original Information
    As proposed, Rule 21F-4(b)(1) tracked the definition of ``original
information'' found in Section 21F(a)(3) of the Exchange Act, with the
added requirement that the information must be provided to the
Commission for the first time after the date of enactment of Dodd-
Frank. We are adopting the rule as proposed.
a. Proposed Rule
    Our proposed rule defined ``original information'' to mean
information that is: (i) Derived from the independent knowledge or
independent analysis of the whistleblower; (ii) not already known to
the Commission from any other source, unless the whistleblower is the
original source of the information; (iii) not exclusively derived from
an allegation made in a judicial or administrative hearing, in a
governmental report, hearing, audit, or investigation, or from the news
media, unless the whistleblower is a source of the information; \87\
and (iv) provided to the Commission for the first time after July 21,
2010 (the date of the enactment of Dodd-Frank). The first three
requirements recited the definition of ``original information'' found
in Section 21F(a)(3) of the Exchange Act. The fourth requirement made
clear that awards would be considered only for original information
submitted after the enactment of Section 21F.
---------------------------------------------------------------------------

    \87\ In our Proposing Release we stated that we will interpret
the term ``judicial or administrative hearing'' to include hearings
in arbitration proceedings. See Proposing Release note 19. One
commenter expressed concern that this interpretation would prevent a
plaintiff in arbitration from making a whistleblower submission on
the basis of his allegations and the evidence adduced at the
hearing. See letter from Stuart D. Meissner, LLC. However, in that
instance, the plaintiff would qualify as the source of the
allegations, and nothing in the definition of ``original
information'' would preclude the plaintiff from using evidence
adduced at the hearing to support his or her submission to the
Commission. Rather, our inclusion of arbitration hearings within the
scope of the rule would preclude others who are involved with the
arbitration--such as the reporter, or an arbitrator--from using the
plaintiff's allegations to make a whistleblower submission for their
own benefit.
---------------------------------------------------------------------------

    Some of the elements of this definition--specifically,
``independent knowledge,'' independent analysis,'' and ``original
source''--are defined in other proposed rules, and are separately
discussed below.
b. Comments Received
    Some commenters urged that our definition of ``original
information'' be broadened in various ways. One commenter suggested
that ``original information'' should include information that was
provided to the Commission before the enactment of Dodd-Frank if the
information leads to an enforcement action after the date of
enactment.\88\ Another commenter offered that ``original information''
should include information an employee reports to his or her company
and that is later reported to the Commission by the company.\89\
Similarly, another commenter expressed concern that, because ``original
information'' must be information that is ``not already known'' to the
Commission, the definition appeared to exclude subsequent
whistleblowers who provide additional helpful information.\90\ This
commenter urged that we not automatically exclude subsequent
whistleblowers, but instead make an appropriate award allocation among
the individuals involved.
---------------------------------------------------------------------------

    \88\ See letter from Bijan Amin; see also pre-proposal letter
from James Hill.
    \89\ See letter from Hunton & Williams LLP.
    \90\ See letter from DC Bar.
---------------------------------------------------------------------------

    Other commenters believed that our definition of ``original
information'' should be narrowed to exclude certain information from
consideration for an award. Two commenters suggested that our rule
exclude information beyond the statute of limitations period for
actions to recover penalties.\91\ One of these commenters also urged
that ``original information'' should not include information about a
violation that has already been addressed by the entity that is alleged
to have violated the securities laws.\92\
---------------------------------------------------------------------------

    \91\ See letters from ICI and SIFMA.
    \92\ See letter from ICI.
---------------------------------------------------------------------------

    Another commenter expressed concern that, as proposed, ``original
information'' would not clearly exclude information a whistleblower
receives as a result of an investigation by a securities exchange or
other self-regulatory organization, a foreign regulator, or information
received in connection with internal investigations or civil or
criminal proceedings.\93\ This commenter urged that the rule be
modified to exclude information derived from any investigative or
enforcement activity or proceeding, and not merely the types of
proceedings set forth in the statute (i.e., ``an allegation made in a
judicial or administrative hearing, in a governmental report, hearing,
audit, or investigation'').
---------------------------------------------------------------------------

    \93\ See letter from ABA.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are adopting Rule 21F-4(b)(1) as
proposed. Congress enacted Section 21F in order to provide new
incentives for individuals with knowledge of securities violations to
report those violations to the Commission. We believe that applying
Section 21F prospectively--for new information provided to the
Commission after the statute's enactment and not to information
previously submitted--is most consistent with Congressional intent and
with the language of the statute.\94\ Similarly, we do not believe that
it would be consistent with Congressional intent for our rules to
categorically exclude through the definition of ``original
information'' tips about violations that may arguably be beyond an
applicable statute of limitations or that a company may have addressed
through remedial action. Rather, considerations such as these are
better addressed through our exercise of discretion in determining
whether to open an investigation, whether to bring an enforcement
action, and the nature and scope of any action filed and relief
granted.
---------------------------------------------------------------------------

    \94\ Section 924(b) of Dodd-Frank provides that ``Information
provided to the Commission in writing by a whistleblower shall not
lose the status of original information * * *, if the information is
provided by the whistleblower after the effective date of this
subtitle.''
---------------------------------------------------------------------------

    In other respects, we believe that our final rules substantially
address the issues raised by the commenters. For example, under Rules
21F-4(b)(5) and (6) an individual can be considered the original source
of information provided to the Commission by another source (including
the individual's employer), or of information that ``materially adds''
to information already in our possession. Further, Rule 21F-4(c), as
adopted, provides that a whistleblower may be eligible for an award
based upon information that the whistleblower reports through a
company's internal legal and compliance procedures if the company
subsequently provides the information to the Commission. In addition,
Rule 21F-4(c) provides that, even after an investigation has commenced,
a whistleblower can be eligible for award consideration if he or she
provides original information that significantly contributes to the
success of the Commission's action. Thus, our rules will permit awards
to subsequent whistleblowers in appropriate circumstances.
    Similarly, we believe that several provisions in our rules will
ordinarily operate to exclude whistleblowers whose only source of
original information is an existing investigation or proceeding.
Information that is exclusively derived from a governmental
investigation is expressly excluded from the definition of ``original
information'' under Section 21F(a)(3) of the Exchange Act and our Rule
21F-

4(b)(1)(iii). A whistleblower who learns about possible violations only
through a company's internal investigation will ordinarily be excluded
from claiming ``independent knowledge'' by operation of either the
exclusions from ``independent knowledge'' set forth in Rules 21F-
4(b)(4)(i), (ii), and (iii) (relating to attorneys, auditors, and other
persons who may be involved in the conduct of internal investigations),
or by Rule 21F-4(b)(4)(vi) (excluding information learned from such
individuals). To the extent that information about an investigation or
proceeding is publicly available, it is excluded from consideration as
``independent knowledge'' under Rule 21F-4(b)(2).\95\
---------------------------------------------------------------------------

    \95\ Further, Form TCR, to be used for whistleblower
submissions, requires the whistleblower to state, under penalty of
perjury, how he or she obtained the information that is the subject
of the submission. A truthful answer that the whistleblower obtained
the information from an investigation by a securities exchange or a
self-regulatory organization--if the staff were not already aware of
the investigation--would likely lead the staff to contact the other
authority directly for additional information. In these
circumstances, where information is obtained through the normal
cooperative arrangements between the Commission and other
regulators, the whistleblower's submission would not be deemed to
have caused the opening of an investigation, or to have
significantly contributed to the success of any action, such as to
make the whistleblower eligible for an award under Rule 21F-4(c).
---------------------------------------------------------------------------

 3. Rule 21F-4(b)(2)--Independent Knowledge
    Proposed Rule 21F-4(b)(2) defined ``independent knowledge,'' one of
the constituent elements of ``original information,'' as factual
information not derived from publicly available sources. We are
adopting the rule as proposed.
a. Proposed Rule
    Under our proposed rule, ``independent knowledge'' was defined to
mean factual information in the whistleblower's possession that is not
derived from publicly available sources. As we explained in our
Proposing Release, publicly available sources may include both sources
that are widely disseminated (such as corporate press releases and
filings, media reports, and information on the Internet), and sources
that, though not widely disseminated, are generally available to the
public (such as court filings and documents obtained through Freedom of
Information Act requests). Further, as proposed, the definition of
``independent knowledge'' did not require that a whistleblower have
direct, first-hand knowledge of possible violations. Instead, knowledge
could be obtained from any of the whistleblower's experiences,
observations, or communications (subject to the exclusion for knowledge
obtained from public sources, and subject further to the exclusions set
forth in Rule 21F-4(b)(4)).
b. Comments Received
    Several commenters supported our proposed definition of
``independent knowledge.'' \96\ Others were critical of the definition
for different reasons. Some commenters criticized our exclusion of
information derived from publicly available sources, and urged that
awards be available for tips that are based upon various kinds of
public information.\97\ One of these commenters argued that, because
Section 21F does not contain an express exclusion for all information
derived from publicly available sources, the only public information
that can be excluded from award consideration is information that is
derived from the sources that are set forth in Section 21F(a)(3)(C)--
i.e., a judicial or administrative hearing, a government report,
hearing, audit, or investigation, or the news media.\98\ This commenter
stated that this interpretation would be consistent with the
application of the ``public disclosure bar'' of the False Claims Act,
31 U.S.C. Sec.  3730(e)(4)). Similarly, this commenter argued that our
proposal to exclude publicly-available information from the definition
of ``independent knowledge'' was unsupportable because the statute only
excludes claims based upon information that is ``already known to the
Commission.'' \99\
---------------------------------------------------------------------------

    \96\ See Letters from Institute of Internal Auditors, Patrick
Burns, Auditing Standards Committee, Georg Merkl.
    \97\ See Letters from the VOICES, Wanda Bond, Michael Lawrence,
and TAF; see also pre-proposal letter from Robin McLeish.
    \98\ See letter from TAF; see also letter from VOICES.
    \99\ Section 21F(a)(3)(B), 15 U.S.C. 78u-6(a)(3)(B). See letter
from TAF.
---------------------------------------------------------------------------

    We requested comment on whether it is appropriate to consider
knowledge that is not direct, first-hand knowledge as ``independent
knowledge'' In response, one commenter urged that we limit
``independent knowledge'' to first-hand knowledge of the
whistleblower.\100\ This commenter expressed concerned about the
reliability of second-hand information, and the potential that our rule
could harm companies by creating an incentive for whistleblowers to
report unsubstantiated rumors and other unreliable information. This
commenter also suggested that the absence of a first-hand knowledge
requirement would encourage circumvention of the statute by permitting
persons who are ineligible for awards to give information to third
persons in order to enable them to become whistleblowers.
---------------------------------------------------------------------------

    \100\ See letter from ABA.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are adopting Rule 21F-4(b)(2) as
proposed. Accordingly, ``independent knowledge'' means any factual
information in the whistleblower's possession that is not derived from
publicly available sources. Congress primarily intended our
whistleblower program ``* * * to motivate those with inside knowledge
to come forward and assist the Government to identify and prosecute
persons who have violated the securities laws * * *.'' \101\ It is
consistent with this purpose to require that ``independent knowledge''
be derived from a whistleblower's own experiences, observations, or
communications, and not from information that is available to the
general public.\102\
---------------------------------------------------------------------------

    \101\ S. Rep. No. 111-176 at 110 (2010).
    \102\ However, publicly available information can be included as
part of a submission of ``independent analysis'' under Rule 21F-
4(b)(3). See discussion below.
---------------------------------------------------------------------------

    The objection that our rule should permit submissions based upon
public information as long as the information is not derived from a
judicial or administrative hearing, a governmental report, hearing,
audit, or investigation, or from the news media is not supported by the
plain language of Section 21F. The definition of ``original
information'' found in Section 21F(a)(3) requires both that the
information be derived from the whistleblower's independent knowledge
or analysis (Section 21F(a)(3)(A)), and that it also not be exclusively
derived from an allegation in one of these fora (Section 21F(a)(3)(C)).
If ``independent knowledge'' were interpreted to mean merely that the
information could not be derived from one of the sources specified in
Section 21F(a)(3)(C), then the separate requirement that the
whistleblower also have ``independent knowledge'' would have no
meaning.\103\
---------------------------------------------------------------------------

    \103\ The ``public disclosure bar'' of the False Claims Act
operates differently. There, ``independent knowledge'' is not a
separate requirement, but instead is one element of an exception to
the rule that otherwise requires a court to dismiss an action if
substantially the same allegations or transactions were publicly
disclosed in certain specified fora, such as a Federal hearing in
which the Government is a party, a Federal government report or
investigation, or the news media. 31 U.S.C. 3730(e)(4).
---------------------------------------------------------------------------

    The same analysis applies to the suggestion that ``independent
knowledge'' cannot exclude publicly-available information and can only
exclude information that is ``not known to the Commission'' from any
other

source. The requirement of ``independent knowledge'' is set forth in
Section 21F(a)(3)(A) of the Exchange Act, and is distinct from the
requirement in Section 21F(a)(3)(B) that information be not already
known to the Commission. In other words, both tests must be met
separately as part of the determination of whether information
qualifies as ``original information.''
    While we thus exclude information derived from publicly available
sources from the definition of ``independent knowledge,'' we do not
believe that ``independent knowledge'' should be further limited to
direct, first-hand knowledge. Such an approach could prevent the
Commission from receiving valuable information about possible
violations from whistleblowers who are not themselves involved in the
conduct at issue, but who learn about it through their observations,
relationships, or personal diligence.\104\ Our final rules provide
that, in order to be considered eligible for an award, a whistleblower
must provide information that is sufficiently specific, credible, and
timely that it causes the staff to open an investigation, or
significantly contributes to the success of an enforcement action.\105\
We believe that commenters' concerns about whistleblowers providing
wholly speculative or unsubstantiated information is most effectively
addressed in connection with these determinations rather than by
requiring first-hand knowledge as a threshold limitation for
whistleblower submissions.\106\
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    \104\ Further, as discussed in our Proposing Release, Congress
recently amended the ``public disclosure bar'' provisions of the
False Claims Act, replacing the requirement that a qui tam plaintiff
have ``direct and independent knowledge'' of information with one
requiring only ``knowledge that is independent and materially adds
to the publicly-disclosed allegations or transactions * * *'' 31
U.S.C. 3130(e)(4), Public Law 111-148 Sec.  10104(h)(2), 124 Stat.
901 (Mar. 23, 2010). Courts generally defined ``direct knowledge''
to mean first-hand knowledge from the relator's own work and
experience, with no intervening agency. E.g., United States ex rel.
Fried v. West Independent School District, 527 F.3d 439 (5th Cir.
2008); United States ex rel. Paranich v. Sorgnard, 396 F.3d 326 (3d
Cir. 2005). Although, as noted in our Proposing Release, we do not
believe that False Claims Act interpretations and precedent are
necessarily authoritative for purposes of Section 21F, we note that
Congress recently amended the False Claims Act to eliminate the
requirement of first-hand knowledge.
    \105\ See Rule 21F-4(c), discussed below.
    \106\ We have addressed commenters' concern about possible
collusion through our revised Rule 21F-8(c)(6).
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4. Rule 21F-4(b)(3)--Definition of Independent Analysis
a. Proposed Rule
    Under Proposed Rule 21F-4(b)(3), ``analysis'' was defined to mean
the whistleblower's own examination and evaluation of information that
may be generally available, but which reveals information that is not
generally known or available to the public. Analysis was defined as
``independent'' if it was the whistleblower's own analysis, whether
done alone or in combination with others. As was explained in our
Proposing Release, this definition was intended to recognize that there
are circumstances where individuals can review publicly available
information, and, through their additional evaluation and analysis,
provide vital assistance to the Commission staff in understanding
complex schemes and identifying securities violations.
b. Comments Received
    Although we received few responses to our request for comment on
suggested alternative definitions of ``independent analysis,'' \107\
most commenters who addressed the proposed rule appeared to agree with
the rule's fundamental premise that ``independent analysis''
anticipates that the whistleblower will apply his or her own evaluation
and insight to information that may be derived from publicly available
sources.\108\ Two commenters suggested we clarify that ``independent
analysis'' can be based on public sources, including the sources
described in Section 21F(a)(3)(C) and Proposed Rule 21F-
4(b)(1)(iii).\109\ One commenter criticized our proposed definition of
``independent analysis'' on the ground that the requirement that
analysis reveal information that is ``not generally known or
available'' would preclude an award to a whistleblower who caused us to
focus on publicly available information of which we were not otherwise
aware.\110\ Another commenter urged that ``independent analysis'' be
restricted to analysis of the whistleblower's own ``independent
knowledge,'' defined by the commenter to be limited to first-hand
knowledge, along with other purely objective facts such as share price
or trading volume.\111\
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    \107\ See letters from Wanda Bond, Auditing Standards Committee,
and Kurt S. Schulzke.
    \108\ See letters from Wanda Bond, Auditing Standards Committee,
Kurt S. Schulzke, POGO (referencing the importance of whistleblowers
``who often perform original analysis based on publicly available
sources'').
    \109\ See letters from POGO and VOICES.
    \110\ See letter from TAF.
    \111\ See letter from ABA.
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c. Final Rule
    After considering the comments, we are adopting Rule 21F-4(b)(3) as
proposed, with a slight modification to clarify that ``independent
analysis'' can be based upon the whistleblower's evaluation of publicly
available sources.\112\ Thus, as adopted, Rule 21F-4(b)(3) defines
``analysis'' to mean the whistleblower's own examination and evaluation
of information that may be publicly available, but which reveals
information that is not generally known or available to the public.
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    \112\ This would include public information that may be derived
from the sources identified in Section 21F(a)(3)(C) and Rule 21F-
4(b)(1)(iii); i.e., a judicial or administrative hearing, a
government report, hearing, audit, or investigation, or the news
media.
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    We believe that ``independent analysis'' requires that the
whistleblower do more than merely point the staff to disparate publicly
available information that the whistleblower has assembled, whether or
not the staff was previously ``aware of'' the information.
``Independent analysis'' requires that the whistleblower bring to the
public information some additional evaluation, assessment, or insight.
    As with other elements of the definition of ``original
information,'' we anticipate that whether ``independent analysis''
provided to the Commission may be eligible for award consideration will
primarily depend (assuming all other requirements are met) 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). This analysis is discussed further below.
    For reasons similar to those discussed above with respect to the
definition of ``independent knowledge,'' we also do not believe it
would be consistent with the purposes of Section 21F to restrict
``independent analysis'' to analysis based upon facts of which the
whistleblower has direct, first-hand knowledge. Such an interpretation
would preclude award consideration even for highly-probative, expert
analysis of data that may suggest an important new avenue of inquiry,
or otherwise materially advance an existing investigation. We do not
believe that Congress intended this result.
5. Rules 21F-4(b)(4)(i) through (vi)--Exclusions From Independent
Knowledge and Independent Analysis
    Proposed Rules 21F-4(b)(4)(i) through (vii) described circumstances
under

which we would not consider a whistleblower's submission to be derived
from independent knowledge or independent analysis. We are adopting a
number of these exclusions, but with significant revisions in response
to comments that we received.\113\ These comments and the resulting
modifications to the rules are discussed below with respect to the
specific exclusions. In this section, we briefly address the exclusions
as a whole.
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    \113\ We have also added the phrase ``in any of the following
circumstances'' in the opening clause of Rule 21F-4(b)(4) in order
to make clear that information is excluded from being considered as
``independent knowledge'' or ``independent analysis'' if any one of
the exclusions apply.
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a. Proposed Rules
    As proposed, Rule 21F-4(b)(4) provided that the Commission would
not credit a whistleblower with ``independent knowledge'' or
``independent analysis'' where the whistleblower obtained the
knowledge, or the information upon which the whistleblower's analysis
was based, under certain circumstances. These included information that
was: (1) Subject to attorney-client privilege or otherwise obtained in
connection with the legal representation of a person or entity
(proposed Rules 21F-4(b)(4)(i) and (ii)); (2) obtained through the
performance of an engagement required under the securities laws by an
independent public accountant, if the information related to a
violation by the engagement client, or the client's officers,
directors, or employees (proposed Rule 21F-4(b)(4)(iii)); (3)
communicated to a person with legal, compliance, audit, supervisory, or
governance responsibilities for an entity with the reasonable
expectation that he or she would cause the entity to respond
appropriately (proposed Rule 21F-4(b)(4)(iv)); (4) otherwise obtained
through an entity's legal, compliance, audit, or similar functions or
processes for identifying, reporting, and addressing potential non-
compliance with law (proposed Rule 21F-4(b)(4)(v)); (5) obtained in
violation of Federal or state criminal law (proposed Rule 21F-
4(b)(4)(vi)); and (6) obtained from any of the persons excluded by Rule
21F-4(b)(4). Certain of these exclusions were subject to exceptions
that are discussed below in connection with the specific rules.
b. Comments Received
    Some commenters generally criticized our approach of defining
exclusions from ``independent knowledge'' and ``independent analysis.''
These commenters argued that Section 21F does not permit any exclusions
from award eligibility other than those expressly provided for in
Section 21F(c)(2). They also expressed concern that the proposed
exclusions were vague and uncertain, and therefore would discourage
potential whistleblowers from taking the personal and professional
risks associated with coming forward. These commenters also believed
that the exclusions would operate to disqualify broad categories of
individuals who are most likely to have information about
misconduct.\114\
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    \114\ See letters from TAF and NWC; see also letter from Stuart
D. Meissner, LLC.
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    In our Proposing Release, we requested comment on whether we should
extend the exclusions from ``independent knowledge'' and ``independent
analysis'' to other professionals (in addition to attorneys and
independent public accountants) who may obtain information about
possible securities violations in the course of their work for clients.
A number of commenters urged that we do so. These commenters emphasized
that boards and companies frequently retain outside consultants to
advise them on matters such as compensation, business strategies, risk,
and the effectiveness of their ethics and compliance programs. These
commenters expressed concern that permitting such outside advisers and
consultants to become whistleblowers will harm the free flow of candid
advice and information that is necessary to these relationships.\115\
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    \115\ See letters from NACD (advocating excluding individuals
hired by boards of directors for purposes of advice and
consultation); the Ethisphere Institute (exclusions should extend to
external advisers who evaluate corporate ethics and compliance
programs); GE Group (should exclude professionals that have
relationships of trust and confidence with companies, including
investment bankers, financial advisers, compensation consultants,
and other consultants); TRACE International, Inc. (noting particular
role of outside experts in FCPA compliance efforts, and advocating
that exclusions include professionals who are regularly engaged by
companies to assist with auditing, creating and implementing robust
anti-bribery compliance programs and internal controls, including
professionals who perform due diligence on third party relationships
as required by the securities laws).
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c. Final Rules
    After considering the comments, we have made several changes to the
exclusions set forth in Rules 21F-4(b)(4)(i) through (vii), which we
have renumbered as Rules 21F-4(b)(4)(i) through (vi). We have
determined not to extend the exclusions to other outside professionals.
    We believe that the exclusions, as modified, are reasonable in
scope and consistent with effective enforcement of the securities
laws.\116\ The exclusions generally apply to narrow categories of
individuals whose knowledge does not, in our view, constitute
``independent knowledge or analysis of a whistleblower,'' because the
information or analysis was acquired by an individual: (1) On behalf of
a third party operating in a sensitive legal, compliance, or governance
role (exclusions (i), (ii) and (iii)(A)-(C)); or (2) in the performance
of an engagement required by the Federal securities laws (exclusion
(iii)(D)); or (3) by illegal means (exclusion (iv)). Only when one of
the exceptions to these exclusions set forth in the rules applies
should information acquired in these situations constitute independent
knowledge or analysis of the whistleblower.
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    \116\ Section 21F does not define the terms ``independent
knowledge'' or ``independent analysis,'' but Section 21F(j)
authorizes the Commission to issue rules ``to implement the
provisions of [Section 21F] consistent with the purposes of [Section
21F].'' A substantial purpose of Section 21F is to promote effective
enforcement of the securities laws.
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    We believe this result is consistent with the purpose of promoting
effective enforcement of the securities laws. Consultation with
attorneys can improve compliance on the part of entities and
individuals.\117\ The

recommended exclusions for certain company officials and third parties
who assist companies in investigations of possible violations of law
are narrowly focused, and promote the goal of ensuring that the persons
most responsible for an entity's conduct and compliance with law are
not incentivized to promote their own self-interest at the possible
expense of the entity's ability to detect, address, and self-report
violations. The exclusion for auditors performing engagements required
by the securities laws reflects the fact that these individuals occupy
a special position under the securities laws to perform a critical role
for investors. Further, as adopted, our rule permits such individuals
to become whistleblowers under certain circumstances.\118\
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    \117\ A number of comments asserted that, in addition to the
attorney-client privilege, any information received in breach of
other confidential relationships recognized by common-law
evidentiary privileges should be excluded from the definition of
independent knowledge. See, e.g., joint letter from Alcoa Inc.,
Celanese Corporation, Citigroup, Ingersoll-Rand plc, Intel
Corporation, Johnson & Johnson, JPMorgan Chase & Co., Kraft Foods
Inc., Pfizer Inc., Prudential Insurance Company America, and Tyco
International Ltd. (``Alcoa Group''); Auditing Standards Committee;
TRACE International, Inc. But see letter from NWC (opposing any
exclusion for privileged information). Those commenters generally
took the position that these relationships have historically been
recognized as deserving protection based on public policy
considerations, and creating a monetary incentive for those holding
this sort of privileged information to divulge it to us is contrary
to those public policy considerations. We have determined to exclude
(subject to the exceptions set forth in these rules) only
information received in breach of the attorney-client privilege, not
the other confidential relationships recognized at common-law.
Although we recognize the significant public policies underlying all
of these confidential relationships, we believe that for purposes of
the whistleblower program the attorney-client privilege stands apart
because of the significance of attorney-client communications for
achieving compliance with the Federal securities laws. We will
continue to address assertions of other evidentiary privileges
through our normal investigative and litigation processes. See e.g.,
SEC Division of Enforcement Manual Sec.  3.3.1. In addition,
contrary to the suggestion from a number of commenters, see, e.g.,
letter from PricewaterhouseCoopers, LLP (``PwC''), we are not
excluding information that is received in breach of state-law
confidentiality requirements, such as those imposed on auditors,
because to do so could inhibit important Federal-law enforcement
interests.
    \118\ See Rule 21F-4(b)(4)(vi). The exclusions for information
obtained in violation of Federal or state criminal law and for
information obtained from excluded sources are discussed below.
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    Finally, although we recognize the important role that outside
advisers and consultants play in many aspects of corporate policy and
decision-making, we believe that additional exclusions for such
professionals would too broadly preclude individuals with possible
inside knowledge of violations from coming forward to assist the
Commission in identifying and prosecuting persons who have violated the
securities laws.
(a) Attorney-Client Privilege and Other Attorney Conduct
a. Proposed Rule
    As proposed, Rule 21F-4(b)(4)(i) excluded from the definition of
``independent knowledge'' or ``independent analysis'' information that
was obtained through a communication that is subject to the attorney-
client privilege. In addition, Proposed Rule 21F-4(b)(4)(ii) excluded
from the definition of ``independent knowledge'' or ``independent
analysis'' information that a potential whistleblower obtained as the