[Federal Register Volume 83, Number 140 (Friday, July 20, 2018)]
[Proposed Rules]
[Pages 34702-34752]
[FR Doc No: 2018-14411]

Vol. 83

Friday,

No. 140

July 20, 2018

Part II

Securities and Exchange Commission

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17 CFR Parts 240 and 249

Whistleblower Program Rules; Proposed Rule

Federal Register / Vol. 83 , No. 140 / Friday, July 20, 2018 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-83557; File No. S7-16-18]
RIN 3235-AM11

Whistleblower Program Rules

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing for public comment several amendments to the Commission's
rules implementing its whistleblower program. Section 21F of the
Securities Exchange Act of 1934 (``Exchange Act'') provides, among
other things, that the Commission shall 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. On May 25, 2011, the
Commission adopted a comprehensive set of rules to implement the
whistleblower program. The proposed rules would make certain changes
and clarifications to the existing rules, as well as several technical
amendments. The Commission is also including interpretive guidance
concerning the terms ``unreasonable delay'' and ``independent
analysis.''

DATES: Comments should be received on or before September 18, 2018.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to [email protected]. Please include
File Number S7-16-18 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-16-18. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method of submission. The Commission will post all comments on the
Commission's internet website (http://www.sec/gov/rules/proposed.shtml). Comments are also available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. All comments received will be posted without
change. Persons submitting comments are cautioned that we do not redact
or edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly.
    Studies, memoranda or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Emily Pasquinelli, Office of the
Whistleblower, Division of Enforcement, at<PHONE_NUMBER>; Brian A.
Ochs, Office of the General Counsel, at<PHONE_NUMBER>, Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing to amend 17 CFR
240.21F-3 (``Rule 21F-3''), 240.21F-4 (``Rule 21F-4''), 240.21F-6
(``Rule 21F-6''), 240.21F-8 (``Rule 21F-8'') through 240.21F-13 (``Rule
21F-13''). The Commission is also proposing to add a new rule that
would be codified as 17 CFR 240.21F-18 (``Rule 21F-18'').

Table of Contents

I. Background
    A. The Whistleblower Award Program
    B. Overview of the Proposed Rule Changes and Other Items
II. Discussion of Proposed Amendments
    A. Proposed Amendment to Exchange Act Rule 21F-4(d) Defining an
``action''
    B. Proposed Amendment to Exchange Act Rule 21F-4(e) Defining
``monetary sanctions''
    C. Proposed Amendment to Exchange Act Rule 21F-3(b)(1) Defining
``related action''
    D. Proposed Amendment to Exchange Act Rule 21F-6 Regarding
Awards to a Single Whistleblower Below $2 Million or in Cases
Yielding at Least $100 Million in Collected Monetary Sanctions and
Guidance on the Meaning of ``unreasonable delay'' Under Rule 21F-6
    E. Proposed Amendment to Exchange Act Rule 21F-2 Addressing
Whistleblower Status and Certain Threshold Criteria Related to Award
Eligibility, Heightened Confidentiality From Identity Disclosure,
and Employment Anti-Retaliation Protection
    F. Proposed Amendment to Rule 21F-8 To Add New Paragraph (d) To
Provide the Commission With Additional Flexibility Regarding the
Forms Used in Connection With the Whistleblower Program (and
Corresponding Amendments to Rule 21F-10, Rule 21F-11, and Rule 21F-
12)
    G. Proposed Amendment to Rule 21F-8 To Add New Paragraph (e) To
Clarify and Enhance the Commission's Authority To Address Claimants
Who Submit False Information to the Commission or Who Abuse the
Award Application Process
    H. Proposed Amendments to Rule 21F-9 To Provide Additional
Flexibility and Clarity Regarding Form TCR (and Corresponding
Technical Amendments to Rule 21F-10, Rule 21F-11, and Rule 21F-12)
    I. Proposed Amendment to Rule 21F-12 Regarding the Materials
That May Form the Basis of the Commission's Award Determination
    J. Proposed Amendment to Rule 21F-13 Regarding the
Administrative Record on Appeal
    K. Proposed Rule 21F-18 Establishing a Summary Disposition
Process
    L. Technical Amendment to Rule 21F-4(c)(2)
III. Proposed Interpretive Guidance Regarding the Meaning and
Application of ``independent analysis'' as Defined in Exchange Act
Rule 21F-4(b)(3)
    A. Background: ``Original Information'' and Publicly Available
Information
    B. ``Independent Analysis''
    C. Leads to Successful Enforcement
IV. Request for Comment Regarding a Potential Discretionary Award
Mechanism for Commission Actions That Do Not Qualify as Covered
Actions, Involve Only a De Minimis Collection of Monetary Sanctions,
or Are Based on Publicly Available Information
V. General Request for Public Comment
VI. Paperwork Reduction Act
    A. Background
    B. Summary of the Proposed Amendments
    C. Burden and Cost Estimates Related to the Proposed Amendments
    D. Mandatory Collection of Information
    E. Confidentiality
    F. Request for Comment
VII. Economic Analysis
    A. Economic Baseline
    1. Whistleblower Programs
    2. Supreme Court Decision in Digital Realty Trust, Inc. v.
Somers
    3. IPF and Awards Issued by the SEC Whistleblower Program
    4. Estimates of Current Annual Wages
    B. Analysis of Benefits, Costs, and Economic Effects of the
Proposed Rules
    1. Proposed Amendments to Rule 21F-2
    2. Proposed Rule 21F-3(b)(4)
    3. Proposed Rule 21F-4(d)(3)
    4. Proposed Rule 21F-6(c)
    5. Proposed Rule 21F-6(d)
    6. Proposed Rule 21F-8(e)
    7. Proposed Rule 21F-18
    8. Proposed Interpretive Guidance Regarding the Meaning and
Application of ``independent analysis'' as Defined in Exchange Act
Rule 21F-4(b)(3)

    C. Effects of the Proposed Rules on Efficiency, Competition, and
Capital Formation
IX. Small Business Regulatory Enforcement Fairness Act
X. Regulatory Flexibility Act Certification
XI. Statutory Basis
List of Subjects in 17 CFR Parts 240 and 249
Text of the Proposed Amendments

I. Background

A. The Whistleblower Award Program

    In July 2010, Congress amended the Exchange Act to add new Section
21F.\1\ That provision, entitled ``Securities Whistleblower Incentives
and Protection,'' established the Commission's whistleblower program.
Among other things, 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 a
covered judicial or administrative action \2\ and certain related
actions.\3\
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    \1\ 15 U.S.C. 78u-6.
    \2\ 15 U.S.C. 78u-6(a)(1).
    \3\ 15 U.S.C. 78u-6(a)(5).
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    In May 2011, the Commission adopted a comprehensive set of rules to
implement the whistleblower program. Those rules, which are codified at
17 CFR 240.21F-1 through 240.21F-17, provide the operative definitions,
requirements, and processes related to the whistleblower program. Among
other things, these rules:
     Define key terms and phrases in Section 21F that determine
whether an individual's information qualifies for an award--terms such
as ``original information,'' ``voluntary,'' and ``leads to successful
enforcement'';
     specify the form and manner in which an individual must
submit information to qualify as a whistleblower eligible for an award;
     establish the procedures for anonymous submissions;
     exclude certain individuals from eligibility, such as
individuals who are, or were at the time that they acquired the
original information provided to the Commission, a member, officer, or
employee of a foreign government;
     explain which law-enforcement proceedings undertaken by
other authorities may qualify for a related action award from the
Commission;
     establish the procedures for determining awards both in
Commission actions and related actions; and
     identify the criteria that the Commission will consider in
setting the percentage amount of an award.
    The Commission's whistleblower program has made significant
contributions to the effectiveness of the Commission's enforcement of
the federal securities laws. The Commission has received over 22,000
whistleblower tips since the inception of the program through the end
of Fiscal Year 2017. Original information provided by whistleblowers
has led to enforcement actions in which the Commission has obtained
over $1.4 billion in financial remedies, including more than $740
million in disgorgement of ill-gotten gains and interest, the majority
of which has been or is scheduled to be returned to harmed investors.
The Commission has ordered over $266 million in whistleblower awards to
55 individuals whose information and cooperation assisted the
Commission in bringing successful enforcement actions and, in some
instances, other enforcement authorities in bringing related actions
against wrongdoers. That said, approximately $112 million of that
amount was paid to just four individuals in connection with two
Commission enforcement actions and a related action.\4\
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    \4\ The average (mean) of these awards was approximately $38
million and the median award was approximately $33 million.
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    We recognize that individuals who step forward to provide
information to the Commission may do so at great personal peril and
professional sacrifice. We view the three key tenets of the program--
monetary awards, confidentiality, and retaliation protections--as
complementary and critical to the success of the program.

B. Overview of the Proposed Rule Changes and Other Items

    After nearly seven years of experience administering the
whistleblower program, we have identified various ways in which the
program might benefit from additional rulemaking. We believe that the
changes that we are proposing will build on the program's success by
continuing to encourage individuals to come forward and by permitting
us to more efficiently process award applications, among other
potential benefits.
    Based on our experience to date, we propose the following
substantive amendments to our rules:
     Allowing awards based on deferred prosecution agreements
(``DPAs'') and non-prosecution agreements (``NPAs'') entered into by
the U.S. Department of Justice (``DOJ'') or a state attorney general in
a criminal case, or a settlement agreement entered into by the
Commission outside of the context of a judicial or administrative
proceeding to address violations of the securities laws: We propose an
amendment that would expressly allow for the payment of awards based on
money collected under these types of arrangements. Currently, our
whistleblower rules do not address whether the Commission may pay an
award when an eligible whistleblower voluntarily provides original
information that leads to a DPA or NPA entered into by DOJ or a state
attorney general in a criminal proceeding. Nor do our rules currently
address whether the Commission may pay an award to an eligible
whistleblower who voluntarily provides information that leads to a
settlement agreement entered into by the Commission outside of the
context of a judicial or administrative proceeding to address
violations of the securities laws. We are proposing to amend the
definition of an ``action'' in Rule 21F-4(d) \5\ to include, as
administrative actions, these arrangements, with the money paid under
such arrangements deemed to be ``monetary sanctions'' under Rule 21F-
4(e),\6\ and, thus to expressly permit us to pay awards thereon.
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    \5\ 17 CFR 240.21F-4(d).
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     Elimination of potential double recovery under the current
definition of related action: We propose an amendment to our rules to
clarify that a law-enforcement action would not qualify as a related
action if the Commission determines that there is a separate
whistleblower award scheme that more appropriately applies to the
enforcement action. Although neither Section 21F of the Exchange Act
(nor the whistleblower program rules thereunder) expressly addresses
this situation, the Commission and the Claims Review Staff in the
context of processing award applications have interpreted the term
``related action'' under Section 21F to exclude those matters brought
by one of the entities listed in Rule 21F-3(b)(1) \7\ for which there
is a more directly applicable award program. The proposed rule would
codify this interpretation.
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    \7\ 17 CFR 240.21F-3(b)(1).
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     Additional considerations for small and exceedingly large
awards: In the context of potential awards that could yield a payout of
$2 million or less to a whistleblower, the proposed rules would
authorize the Commission to adjust the award percentage upward under
certain circumstances (subject to the 30% statutory maximum) to an

amount that the Commission determines more appropriately achieves the
program's objectives of rewarding meritorious whistleblowers and
sufficiently incentivizing future whistleblowers who might otherwise be
concerned about the low dollar amount of a potential award. Relatedly,
in the context of potential awards that could yield total collected
monetary sanctions of at least $100 million, the proposed rules would
authorize the Commission to adjust the award percentage so that it
would yield a payout (subject to the 10% statutory minimum) that does
not exceed an amount that is reasonably necessary to reward the
whistleblower and to incentivize other similarly situated
whistleblowers; however, in no event would the award be adjusted below
$30 million.\8\ Currently, the whistleblower rules do not expressly
permit the Commission to consider whether a relatively small or
exceedingly large potential payout is appropriate to advance the
program's goals of rewarding whistleblowers and incentivizing future
whistleblowers. We are proposing to amend the whistleblower program
rules to include these considerations as additional award criteria.
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    \8\ In determining whether a large award would provide a payout
that goes beyond what would be necessary to achieve the program's
goals, we anticipate that the Commission would consider, among other
factors, the value of the whistleblower's information and the
personal and professional sacrifices made in reporting the
information.
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    The three proposed rule changes described above are intended to
serve two important and related objectives. First, the amendments are
designed to help ensure that an eligible, meritorious whistleblower is
appropriately rewarded for his or her efforts when the Commission or a
related-action authority recovers monetary sanctions from wrongdoing
that violates the securities laws. Second, the amendments would help
ensure that the Investor Protection Fund (IPF) that Congress has
established to pay meritorious whistleblowers is used in a manner that
effectively and appropriately leverages the IPF to further the
Commission's law-enforcement objectives.\9\
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    \9\ By statute, the IPF ``is established in the Treasury of the
United States'' and ``is available to the Commission, without
further appropriation or fiscal year limitation,'' to pay ``awards
to whistleblowers'' under Section 21F(b). Exchange Act Sec.
21F(g)(1), 15 U.S.C. 78-6(g)(1). The IPF may also be used to fund
certain limited activities of the Inspector General and the Office
of the Whistleblower. As of the end May 2018, the balance of the IPF
for the first time fell below the $300 million threshold that
triggers the statutory replenishment mechanism; this occurred when
the Commission paid $83 million--its largest payout to date on an
enforcement action--to three individuals. For a complete description
of the mechanisms that Congress established to replenish the IPF,
see Section 21F(g)(3) of the Exchange Act, 15 U.S.C. 78-6(g)(3).
Generally speaking, the IPF is funded in the following way: (i)
Deposits of any monetary sanction collected by the Commission in any
judicial or administrative action brought by the Commission under
the securities laws that is not added to a disgorgement fund or
other fund under section 308 of the Sarbanes-Oxley Act of 2002 (15
U.S.C. 7246) or otherwise distributed to victims of a violation of
the securities laws, unless the balance of the IPF at the time the
monetary sanction is collected exceeds $300,000,000; (ii) deposits
of any monetary sanction added to a disgorgement fund or other fund
under section 308 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246)
that is not distributed to the victims for whom the fund was
established, unless the balance of the disgorgement fund at the time
the determination is made not to distribute the monetary sanction to
such victims exceeds $200,000,000; and (iii) if the amounts
deposited in the IPF under item (i) and (ii) above are not
sufficient to satisfy a whistleblower award, the Commission must
deposit money into the fund from the monetary sanctions collected in
the covered action that the whistleblower's information led to (even
if the money could have been directed to victims of the violation)
in an amount equal to the unsatisfied portion of the award.
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    We believe that using the IPF to compensate whistleblowers who come
forward with original information that leads to a DPA or NPA entered
into by DOJ or a state attorney general, or a settlement agreement
entered into by the Commission outside of the context of a judicial or
administrative proceeding (provided the total money required to be paid
in the action, including any other proceedings that arise out of the
same nucleus of operative facts, exceeds $1,000,000) achieves both of
these objectives. We similarly believe that these objectives are
furthered by providing the Commission with additional discretion to
determine that an action does not qualify as a related action if
Congress or another authority has established a more directly
applicable or relevant award program. Additionally, we believe that
these two objectives are furthered by authorizing the Commission to
adjust upward the award percentage in certain cases where the award
would otherwise yield a payout of $2 million or less to a
whistleblower, as well as to consider whether, in the context of an
award issued in connection with certain large Commission or related
actions, any whistleblower award exceeds an amount that is reasonably
necessary to advance the program's goals. Absent this last amendment,
the Commission may find itself faced with the possibility of paying out
significantly large awards that are in excess of the amounts
appropriate to advance the goals of the whistleblower program. These
awards could substantially diminish the IPF, requiring the Commission
to direct more funds to replenish the IPF rather than making that money
available to the United States Treasury, where they could be used for
other important public purposes.\10\
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    \10\ Any funds used to replenish the IPF otherwise would be
directed to the Treasury for use in funding other public programs.
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    Beyond the amendments discussed above, we are proposing to modify
Exchange Act Rule 21F-2.\11\ The amendments that we are proposing to
this rule are in response to the Supreme Court's recent decision in
Digital Realty Trust, Inc. v. Somers.\12\ In that decision, the Court
held that Section 21F(a)(6) of the Exchange Act unambiguously requires
that an individual report a possible securities law violation to the
Commission in order to qualify for employment retaliation protection,
and that the Commission's rule interpreting the anti-retaliation
protections in Section 21F(h)(1) more broadly was therefore not
entitled to deference.\13\ We are proposing to modify Rule 21F-2 so
that it comports with the Court's holding by, among other things,
promulgating a uniform definition of ``whistleblower'' that would apply
to all aspects of Exchange Act Section 21F. We are also proposing to
provide certain related clarifications to Rule 21F-2 and to address
certain other interpretive questions that have arisen in connection
with the Court's holding.
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    \11\ 17 CFR 240.21F-2.
    \12\ 138 S. Ct. 767 (2018).
    \13\ 138 S. Ct. at 781-82.
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    In addition to the foregoing amendments, we are proposing several
other amendments that are intended to clarify and enhance certain
policies, practices, and procedures in implementing the program. We are
proposing to revise Exchange Act Rule 21F-4(e) \14\ to clarify the
definition of ``monetary sanctions'' so that it codifies the agency's
current understanding and application of that term. We are also
proposing to revise Exchange Act Rule 21F-9 \15\ to provide the
Commission with additional flexibility to modify the manner in which
individuals may submit Form TCR (Tip, Complaint or Referral). We are
similarly proposing to revise Exchange Act Rule 21F-8 \16\ to provide
the Commission with additional flexibility regarding the forms used in
connection with the whistleblower program.\17\ Further, we are
proposing an amendment to Exchange Act Rule 21F-12 \18\ to clarify the
list of materials that the Commission may rely upon in

making an award determination. We are also proposing an amendment to
Rule 21F-13 \19\ to clarify the materials that may comprise the
administrative record for purposes of judicial review.
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    \14\ 17 CFR 240.21F-4(e).
    \15\ 17 CFR 240.21F-9.
    \16\ 17 CFR 240.21F-8.
    \17\ 17 CFR 249.1800 and 249.1801.
    \18\ 17 CFR 240.21F-12.
    \19\ 17 CFR 240.21F-13.
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    Two further changes are designed to help increase the Commission's
efficiency in processing whistleblower award applications. We are
proposing to add paragraph (e) to Exchange Act Rule 21F-8 \20\ to
clarify the Commission's ability to bar individuals from submitting
whistleblower award applications where they are found to have submitted
false information in violation of Exchange Act Section 21F(i) \21\ and
Rule 8(c)(7) \22\ thereunder, as well as to afford the Commission the
ability to bar individuals who repeatedly make frivolous award claims
in Commission actions. We are also proposing to add new Exchange Act
Rule 21F-18 to afford the Commission with a summary disposition
procedure for certain types of likely denials, such as untimely award
applications and those applications that involve a tip that was not
provided to the Commission in the form and manner that the Commission's
rules require.
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    \20\ 17 CFR 240.21F-8.
    \21\ 15 U.S.C. 78u-6(i).
    \22\ 17 CFR 240.21F-8(c)(7).
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    We are also proposing a technical correction to Exchange Act Rule
21F-4(c)(2) \23\ to modify an erroneous internal cross-reference, as
well as several technical modifications to Exchange Act Rules 21F-9,
10, 11, and 12 \24\ to accommodate certain of the substantive and
procedural changes described above.
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    \23\ 17 CFR 240.21F-4(c)(2).
    \24\ 17 CFR 240.21F-9 through 240.21F-12.
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    We have included two additional items beyond the proposed
amendments to our rules. First, we are including proposed interpretive
guidance to help clarify the meaning of ``independent analysis'' as
that term is defined in Exchange Act Rule 21F-4 and utilized in the
definition of ``original information.'' Second, we are including a
general inquiry for public comment regarding whether the Commission in
a future rulemaking could establish a potential discretionary award
mechanism for Commission enforcement actions that either do not qualify
as covered actions, are based on publicly available information (and
not ``original information'' as that term is defined in Exchange Act
Rule 21F-4(b)(1)(i) \25\), or where the monetary sanctions collected
are de minimis.\26\
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    \25\ 17 CFR 240-21F-4(b)(1)(i).
    \26\ In July 2014, the Commission received two petitions for
rulemaking relating to the whistleblower program. The petitions for
rulemaking can be found on the Commission's website at this
location: https://www.sec.gov/rules/petitions.shtml. Both petitions
sought the same or similar amendments to the whistleblower program
rules in two respects. In connection with issuing this proposing
release, we have considered the two petitions and determined to
proceed as follows. First, to the extent that the petitions
requested clarification through rulemaking in connection with
employment anti-retaliation protections for internal reporting, we
believe that the amendments we are proposing to Exchange Act Rule
21F-2 (discussed above) appropriately address this issue following
the Supreme Court's recent decision in Digital Realty. Second, to
the extent the rulemaking petitions request that we add clarifying
language to Exchange Act Rule 21F-17(a), 17 CFR 240.21F-17(a), we
find the amendments unnecessary at this juncture because, as noted
by the petitioners, ``the plain language of Rule 21F-17 and existing
case law compel the conclusion'' that the contracts the petitioners
are concerned with are already ``unenforceable[.]'' See Exchange Act
Rule 21F-17(a), 17 CFR 240.21F-17(a) (providing that no person may
take any action to impede an individual from communicating directly
with the Commission staff about a possible securities law violation,
including enforcing, or threatening to enforce, a confidentiality
agreement (other than agreements dealing with information covered by
Sec.  240.21F-4(b)(4)(i) and (ii) of the chapter related to the
legal representation of a client) with respect to such
communications.). In fact, the Commission has successfully brought
nine enforcement actions for violations of Rule 21F-17. See
generally SEC National Exam Program Risk Alert: Examining
Whistleblower Rule Compliance at 1-2 & n. 3 (October 24, 2016),
available at https://www.sec.gov/ocie/announcement/ocie-2016-risk-alert-examining-whistleblower-rule-compliance.pdf (summarizing
Commission enforcement actions). Finally, in accordance with Rule
192 of the Commission's Rules of Practice, see 17 CFR 201.192, the
Secretary of the Commission shall notify the petitioners of the
action taken by the Commission following the publication of this
proposing release in the Federal Register.
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II. Discussion of Proposed Amendments

    The proposed amendments are set forth below.

A. Proposed Amendment to Exchange Act Rule 21F-4(d) \27\ Defining an
``action'' \28\
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    \27\ 17 CFR 240.21F-4(d).
    \28\ The Commission anticipates that this proposed rule change,
if adopted, would apply to all new DPAs, NPAs, and Commission
settlement agreements covered by the proposed rule that are entered
into after the effective date of the rules. The proposed rule would
not apply to any such agreements entered on or before the effective
date of the rules.
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    Section 21F of the Exchange Act authorizes us to pay whistleblower
awards in relation to the ``successful enforcement'' of ``covered
judicial or administrative actions'' brought by the Commission and
certain ``related actions'' of other authorities, most notably DOJ.\29\
Awards range between 10 percent and 30 percent ``of what has been
collected of the monetary sanctions imposed'' in the action.\30\
Proposed Rule 21F-4(d)(3) would provide that, for purposes of making a
whistleblower award, a DPA or NPA entered into by DOJ or a state
attorney general in a criminal case would be deemed to be an
``administrative action'' and any money required to be paid thereunder
would be deemed a ``monetary sanction.'' The same result would follow
for a settlement agreement entered into by the Commission outside of
the context of a judicial or administrative proceeding to address
violations of the securities laws. The premise of proposed Rule 21F-
4(d)(3) is the same as that underlying current Rule 21F-4(d)(1) \31\:
Our view that Congress did not intend for meritorious whistleblowers to
be denied awards simply because of the procedural vehicle that the
Commission (or the other authority) has selected to pursue an
enforcement matter.\32\
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    \29\ 15 U.S.C. 78u-6(b)(1). A ``covered judicial or
administrative action'' is any judicial or administrative action
brought by the Commission under the securities laws that results in
monetary sanctions exceeding $1 million. Id. 6(a)(1). A ``related
action'' is a judicial or administrative action brought by any of
several authorities designated in the statute that is based upon the
original information provided by a whistleblower that led to
successful enforcement of a Commission covered action. Id. 6(a)(5).
    \30\ Id. 6(b)(1)(A)-(B).
    \31\ 17 CFR 240.21F-4(d)(1).
    \32\ See Securities Whistleblower Incentives and Protections,
Exchange Act Release No. 64545, 76 FR 34300, 34327 (June 13, 2011).
Recognizing that an ``action'' is generally considered to be a
single captioned case or matter, the Commission adopted Rule 21F-
4(d)(1) to clarify that it would treat two or more separate cases
that arise out of the same nucleus of operative facts as a single
``action'' for purposes of making an award. In this way, the
sanctions ordered in closely connected proceedings, even if
individually under $1 million, are aggregated for purposes of
assessing whether the actions reach the $1 million ``covered
action'' threshold that is necessary to permit consideration of
whistleblower award claims. The critical principle behind this rule
is that a whistleblower should not be denied an award for his or her
contributions to the closely connected cases or matters merely
because the Commission (or other authority) determined not to bring
these cases as one captioned law-enforcement case.
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    Moreover, we also believe that the statutory term ``administrative
action'' is sufficiently ambiguous and broad enough to permit us to
interpret the term to include DPAs and NPAs when these instruments are
employed by DOJ or a state attorney general, or settlement agreements
entered into by the Commission outside of the context of judicial or
administrative proceedings, as an appropriate resolution to a law-
enforcement investigation.\33\ We find it

particularly telling that Congress used the term ``action'' in Section
21F of the Exchange Act, rather than the term ``proceeding,'' to
describe the universe of administrative enforcement outcomes that might
give rise to a whistleblower award. As used elsewhere in Section 21F,
as well as in other provisions of the securities laws and the
Commission's rules thereunder, the term ``proceeding'' refers to
various specifically identified formal processes instituted before the
Commission.\34\ Therefore, the use of the term ``administrative
action'' in describing actions that can give rise to whistleblower
awards suggests that Congress did not clearly intend to limit the scope
of the Commission's authority under Section 21F (outside of judicial
actions) to only the Commission's formal adjudicatory proceedings
specified in the securities laws (or adjudicatory proceedings of
designated related action authorities).
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    \33\ In DOJ's practice, DPAs and NPAs occupy an important middle
ground between declining prosecution and obtaining the conviction of
a corporation in circumstances where the collateral consequences of
a corporate conviction for innocent third parties would be
significant. See United States Attorneys' Manual 9-28.200, 9-
28.1100, available at https://www.justice.gov/usam/united-states-attorneys-manual. As one example, DPAs and NPAs have been a
prominent tool in DOJ's criminal enforcement of the Foreign Corrupt
Practices Act (``FCPA''), 15 U.S.C. 78dd-1 et seq., an area that
overlaps with our own enforcement jurisdiction. In 2017, DOJ entered
into six DPAs or NPAs to resolve FCPA investigations of corporate
entities, securing over $1.4 billion in monetary recoveries. See
FCPA Related Enforcement Actions: 2017, available at https://www.justice.gov/criminal-fraud/case/related-enforcement-actions/2017.
    \34\ See, e.g., Exchange Act Sections 21F(h)(2)(A), 15 U.S.C.
78u-6(h)(2)(A) (disclosure of whistleblower identities to a
``respondent in connection with a public proceeding instituted by
the Commission''), 21B, 15 U.S.C. 78u-2 (``Civil Remedies in
Administrative Proceedings''), 21C, 15 U.S.C. 78u-3 (``Cease-and-
Desist Proceedings''); Securities Act of 1933 Section 8A, 15 U.S.C.
77h-1 (``Cease-and-Desist Proceedings''); Investment Advisers Act
Section 203(i), 15 U.S.C. 80b-3(i) (``Money Penalties in
Administrative Proceedings''); Investment Company Act Section 9(d),
15 U.S.C. 80a-9(d) (``Money Penalties in Administrative
Proceedings''); see also SEC Rule of Practice 101(4), 17 CFR
201.101(4) (defining ``enforcement proceeding'').
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    The Commission has previously exercised its interpretive authority
to pay a whistleblower award with respect to a DPA entered into by DOJ
on the basis that such agreements are filed in a federal court action
that charges the defendant with violations of law.\35\ However, as is
further discussed below, DOJ's practice with respect to NPAs has been
not to commence an accompanying proceeding in either a judicial or
administrative tribunal. Moreover, we have entered into settlement
agreements outside of judicial or administrative proceedings.
Notwithstanding this distinction in form (i.e., whether an accompanying
judicial or administrative proceeding was undertaken), these agreements
are all similar in important respects: Typically, they reward
meaningful cooperation, are premised on significant remedial and
compliance commitments, and obtain monetary remedies for past
violations. Based on our experience with the whistleblower program, we
are of the view that the entry of each of these types of agreements
should be considered the successful enforcement of an administrative
action within the meaning of Section 21F, and that whistleblowers who
voluntarily provide original information that leads to such enforcement
should not be disadvantaged because DOJ, a state attorney general in a
criminal case, or the Commission, in the exercise of enforcement
discretion, may elect to proceed in a form that does not include the
filing of a complaint or indictment in federal (or state) court, or the
institution of an administrative proceeding.\36\ For this reason, we
are proposing Rule 21F-4(d)(3) to clarify that these agreements would
be treated as ``administrative actions'' upon which whistleblower
awards may be based (provided the total money required to be paid in
the Commission action, including any other proceedings that arise out
of the same nucleus of operative facts, exceed $1,000,000).
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    \35\ See generally DOJ Criminal Division and SEC Enforcement
Division, A Resource Guide to the Foreign Corrupt Practices Act at
74 (2012), available at https://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf (``FCPA Resource Guide'') (describing function
and operation of DPAs).
    \36\ See United States v. Fokker, 818 F.3d 733, 737 (D.C. Cir.
2016) (``In certain situations, rather than choose between the
opposing poles of pursuing a criminal conviction or forgoing any
criminal charges altogether, the Executive may conclude that the
public interest warrants the intermediate option of a deferred
prosecution agreement.'').
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    In arriving at this preliminary interpretation, we have found
several considerations to be persuasive. First, we believe that our
rulemaking authority under the Exchange Act and our authority to define
Exchange Act terms is best read as permitting us to incorporate such
agreements within the definition of an ``action.'' \37\ Second, as
discussed above, we do not believe that Congress's use of the phrase
``administrative action'' in Section 21F limits us to considering
whistleblower awards only when investigations are resolved through
formal adjudicatory administrative proceedings. This is especially so
given that such an approach would appear to draw arbitrary distinctions
among otherwise meritorious whistleblowers based solely on the vehicle
that we, DOJ, or a state criminal law authority, in the exercise of
enforcement discretion, may view as the most appropriate in a
particular case. Third, we are cognizant of the context in which
Section 21F was enacted. Congress enacted the Commission's
whistleblower program in 2010, which is the same year that the
Commission initiated, as part of its enforcement cooperation program,
forms of settlement agreements outside of the context of a judicial or
administrative proceeding as an alternative mechanism to resolve
securities law violations.\38\ Given that Commission actions are the
primary focus of the whistleblower program, it is reasonable to
understand that Congress may not have focused on the implications of
such agreements when enacting Section 21F of the Exchange Act.
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    \37\ Section 21F(j) of the Exchange Act, 15 U.S.C. 78u-6(j),
grants us ``the authority to issue such rules and regulations as may
be necessary or appropriate to implement'' the whistleblower award
program. Similarly, Section 23(a)(1) of the Exchange Act, 15 U.S.C.
78w(a)(1), expressly provides the Commission the ``power to make
such rules and regulations as may be necessary or appropriate to
implement the provisions'' of the Exchange Act. In addition, we have
broad definitional authority pursuant to Section 3(b) of the
Exchange Act, 15 U.S.C. 78c(b), which provides us with the ``power
by rules and regulations to define . . . terms used in [the Exchange
Act].''
    \38\ SEC Announces Initiative to Encourage Individuals and
Companies to Cooperate and Assist Investigations, SEC Press Release
2010-6 (Jan. 13, 2010). To date, we have entered into 17 settlements
outside of judicial or administrate proceedings requiring payment of
disgorgement, prejudgment interest, and penalties totaling more than
$53 million.
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    For similar reasons, we believe that the payments required of a
company under the terms of the agreements that would be covered by the
proposed rule should be deemed to be ``monetary sanctions'' within the
meaning of Section 21F of the Exchange Act.\39\ Section 21F(b)(1)
authorizes us to pay meritorious whistleblowers between 10 percent and
30 percent ``of what has been collected of the monetary sanctions
imposed in the action or related actions.'' \40\ ``Monetary sanctions''
are defined, in pertinent part, as money that are ``ordered to be
paid'' as a result of a judicial or administrative action.\41\ Although
the actions that would be covered by the proposed rule take the form of
an agreement between a company and the Government, payment of
disgorgement or other amounts is required of the company in order to
resolve a Commission enforcement investigation or a DOJ criminal
investigation without formal action by a court or agency.\42\

Accordingly, our view is that it is reasonable to treat the monetary
components of the agreements that would be covered by the proposed rule
as ``monetary sanctions'' that are ``imposed'' within the meaning of
Section 21F. Proposed Rule 21F-4(d)(3) thus would clarify that any
money required to be paid under a DPA or NPA will be deemed a monetary
sanction.\43\
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    \39\ Our view on this issue would not be impacted by the
revisions that we are proposing in the next section to the
definition of ``monetary sanctions.''
    \40\ 15 U.S.C. 78u-6(b)(1).
    \41\ Id. (a)(4); 17 CFR 240.21F-4(e).
    \42\ We believe that the agreements covered by this proposed
rule impose monetary sanctions for purposes of Section 21F of the
Exchange Act because they effectively compel or require monetary
payments. For example, when the Commission has utilized certain
agreements entered outside of judicial or administrative
proceedings, the Commission has reserved the authority under the
agreement to pursue an enforcement action if the individual or
company fails to pay the monetary obligations. Enforcement Manual
6.2.2 (Nov. 28, 2017), available at https://www.sec.gov/divisions/enforce/enforcementmanual.pdf. When the Commission has utilized
certain other settlement forms entered outside of judicial or
administrative proceedings, the staff has to date retained its
ability to recommend an enforcement action to the Commission against
the individual or company. Id. at 6.2.3. DOJ DPAs and NPAs have
similar mechanisms available to effectively require an individual or
company to comply with the monetary obligations specified therein or
face prosecution for the violations that are the subject of the
agreement. See U.S. Gov't Accountability Off., GAO-10-110, DOJ Has
Taken Steps to Better Track Its Use of Deferred and Non-Prosecution
Agreements, but Should Evaluate Effectiveness at 11 (2009) (``As
part of DPAs and NPAs, companies are generally required to comply
with a set of terms for a specified duration in exchange for
prosecutors deferring the decision to prosecute or deciding not to
prosecute,'' including ``monetary payments--such as restitution to
victims of crime, forfeiture of the proceeds of the crime, and
monetary penalties imposed by DOJ . . . .'') (emphasis added).
    \43\ We believe the statute and our current rules already
authorize payment of a related action award in connection with a
settlement reached pursuant to the Financial Industry Regulatory
Authority's Acceptance, Waiver, and Consent (``AWC'') process. An
AWC is a form of FINRA disciplinary proceeding in which sanctions,
including fines can be imposed on a member firm or associated
person. See FINRA Rule 9216, available at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=3926.
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    Finally, we are proposing conforming amendments to Rule 21F-11(b)
\44\ to make clear that the time period for filing a claim for an
agreement covered by this proposed rule would run from earliest public
availability of the instrument reflecting the arrangement if evidenced
by a press release or similar dated publication notice, or, absent such
publication notice, the date of the last signature necessary for the
agreement.\45\
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    \44\ 17 CFR 240.21F-11(b).
    \45\ In a rare case where a claimant could demonstrate that
compliance with this proposed rule was impracticable because an
agreement covered by it was not made available to the public before
the passage of the claim deadline calculated under the rule, the
Commission could consider exercising its authority to waive
compliance with the rule. See Section 36(a) of the Exchange Act, 15
U.S.C. 78mm(a), and Exchange Act Rule 21F-8(a), 17 CFR 240.21F-8(a).
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Request for Comment
    1. Should DPAs and NPAs entered by DOJ or a state attorney general
in a criminal case be treated as administrative actions, and the
monetary payments obtained through these DPAs and NPAs treated as
monetary sanctions, for purposes of making whistleblower awards? Should
the same result follow for settlement agreements entered by the
Commission to resolve securities law violations? Why or why not?
    2. Are there other types of arrangements (e.g., the use of
declination letters in cases where the subject company pays all
disgorgement, forfeiture amounts and/or restitution resulting from the
misconduct at issue \46\) that should be included in any rule the
Commission adopts? How would any such arrangements satisfy the
statutory requirements that they constitute a ``judicial or
administrative action brought by'' the Commission or a related-action
authority and that they include ``monetary sanctions'' (i.e., ``monies
. . . ordered to be paid'') that are ``imposed'' in the action? \47\
---------------------------------------------------------------------------

    \46\ See United States Attorneys' Manual 9-47.120 available at
https://www.justice.gov/usam/usam-9-47000-foreign-corrupt-practices-act-1977#9-47.120.
    \47\ See 15 U.S.C. 78u-6(a)(1), (4) and (5) and (b)(1)(A)-(B).
---------------------------------------------------------------------------

    3. Are there specific standards that we should apply in determining
whether other vehicles for resolving investigations should be deemed to
be administrative actions upon which whistleblower awards can be based?
Is it sufficient that a resolution results in a monetary payment?
    4. As discussed above, we are proposing conforming amendments to
Rule 21F-11(b) \48\ to make clear that the time period for filing a
claim for an agreement covered by this proposed rule would run from
earliest public availability of the instrument reflecting the
arrangement if evidenced by a press release or similar dated
publication notice, or, absent such publication notice, the date of the
last signature necessary for the agreement. Please comment on whether
this conforming edit fully covers all potential agreements covered by
proposed Rule 21F-4(d)(3). If there are other types of arrangements
that should be included, would any additional changes to this rule be
necessary or appropriate?
---------------------------------------------------------------------------

    \48\ 17 CFR 240.21F-11(b).
---------------------------------------------------------------------------

B. Proposed Amendment to Exchange Act Rule 21F-4(e) 49
Defining ``monetary sanctions'' 50
---------------------------------------------------------------------------

    \49\ 17 CFR 240.21F-4(e).
    \50\ The Commission anticipates that this proposed rule change,
if adopted, would be utilized by the Commission after the effective
date of the final rules in determining whether an action qualifies
as a ``covered action'' and in calculating any outstanding payments
to be made to meritorious whistleblowers.
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    We propose to amend the definition of ``monetary sanctions'' to
provide additional clarity concerning the class of payments that fall
within the term's scope. The proposed definition, which is based on the
Commission's experiences to date in administering the program, codifies
the understanding of the term ``monetary sanctions'' that is already
employed by the agency.
    Under Section 21F, the determination of what qualifies as a
monetary sanction is important for two reasons. First, a Commission
action qualifies as a ``covered action'' for which a whistleblower
award might be made only if the action ``results in monetary sanctions
exceeding $1,000,000.'' \51\ Whether a payment obligation is a
``monetary sanction'' is thus a threshold question for the Commission
in determining whether to post a Notice of Covered Action.\52\ Second,
to the extent that one or more whistleblowers receives an award, award
payments are calculated based upon the amount that ``has been collected
of the monetary sanctions imposed in the action or related actions.''
\53\
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    \51\ 15 U.S.C. 78u-6(a)(1).
    \52\ See Exchange Act Rule 21F-10(a), 17 CFR 240.21F-10(a).
    \53\ 15 U.S.C. 78u-6(b)(1).
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    Section 21F(a)(4) of the Exchange Act defines the term ``monetary
sanctions,'' when used with respect to any judicial or administrative
action, to mean: (A) Any monies, including penalties, disgorgement, and
interest, ordered to be paid; and (B) any monies deposited into a
disgorgement fund or other fund pursuant to section 308(b) of the
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such
action or any settlement of such action.\54\
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78u-6(a)(4).
---------------------------------------------------------------------------

    Exchange Act Rule 21F-4(e) is substantively identical. Based on our
experience to date in administering the program, we believe that it
would be beneficial to provide additional clarity regarding the scope
of the potential payments that are encompassed within subparagraph (A)
of the statutory definition.\55\
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    \55\ We are not proposing to provide any additional
clarification regarding subparagraph (B) as we believe that it does
not create uncertainty as to the scope of the money that it covers.
---------------------------------------------------------------------------

    The language used in subparagraph (A) of Section 21F(a)(4), when
read in isolation, could potentially be understood to direct that the
Commission treat any order to pay money that is entered in a judicial
or administrative action as a monetary sanction for purposes of the
whistleblower award program. Interpreted in this way, monetary

sanctions would include, for example, orders to pay discovery
sanctions, receivership fees and costs, taxes, and even attorney's fees
imposed under the Equal Access to Justice Act (``EAJA'').\56\
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    \56\ See 5 U.S.C. 504; 28 U.S.C. 2412.
---------------------------------------------------------------------------

    We believe, however, that other portions of Section 21F counsel in
favor of a narrower understanding of which money ``ordered to be paid''
in an action should be treated as monetary sanctions for purposes of
the whistleblower program. We find particularly relevant the definition
of a ``covered action'' in Section 21F(a)(1),\57\ which provides that
the Commission action must ``result[ ] in monetary sanctions exceeding
$1,000,000'' in order for a whistleblower award to be considered. We
believe that the phrase ``results in'' suggests that Congress was
addressing those monetary obligations that the action secures ``as
relief'' for the violations that are the subject of the Commission's
enforcement action.\58\ Similarly, we believe that the phrase
``monetary sanctions imposed in the action'' in Section 21F(b)(1) \59\
indicates that the congressional focus was on monetary obligations that
are in the nature of relief for the violations. So, for example, while
in normal parlance a person might say that civil penalties were
``imposed'' as a result of a securities-law violation, we do not
believe that one would say that a court order approving a court-
appointed receiver's request for fees or costs ``impos[ed]'' a monetary
sanction.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78u-6(a)(1).
    \58\ See generally Black's Law Dictionary 1541 (10th ed. 2014)
(defining a ``sanction'' as ``[a] penalty or coercive measure that
results from a failure to comply with a law, rule, or order'')
(emphasis added).
    \59\ 15 U.S.C. 78u-6(b)(1)(A) and (B).
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    Finally, we find support for our proposed approach in the purpose
of Section 21F to reward whistleblowers for their contributions to the
``successful enforcement'' of Commission actions and related
actions,\60\ and in the common-sense understanding that relief against
wrongdoers is perhaps the essential measure of an action's success.
Given this context, we believe that the term ``monetary sanctions'' is
better understood to mean those requirements to pay money that the
Commission or a related-action authority obtain ``as relief'' in the
underlying action.
---------------------------------------------------------------------------

    \60\ See 15 U.S.C. 78u-6(b)(1).
---------------------------------------------------------------------------

    Based on the language within Section 21F, therefore, we believe
that the language in subparagraph (A) of the statutory definition is
better understood to encompass only those required payments in a
Commission action or related action that are designed as relief for the
violations successfully resolved in the action. Accordingly, we propose
to amend Exchange Act Rule 21F-4(e) to provide that the term ``monetary
sanctions'' means: (1) A required payment that results from a
Commission action or related action and which is either (i) expressly
designated as disgorgement, a penalty, or interest thereon, or (ii)
otherwise required as relief for the violations that are the subject of
the covered action or related action; or (2) any money deposited into a
disgorgement fund or other fund pursuant to section 308(b) of the
Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such
action or any settlement of such action.\61\
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    \61\ Our use of the phrase ``required payment'' rather than
``ordered'' is intended to be consistent with proposed Rule 21F-
4(d)(3), and recognizes that whistleblower tips may be important to
successful enforcement actions that the agreements described in that
proposed rule in which the Commission, DOJ, or a state attorney
general in a criminal case require substantial monetary relief that
is not, however, contained in a Commission order a court order, or
an order issued by an administrative-law judge. See discussion of
proposed Rule 21F-4(d)(3), supra. In our view, a payment that is
required as part of such a resolution is reasonably treated as
``ordered'' when the agency has some mechanism to compel the payment
either directly or indirectly. This could include, but does not
necessarily require, the ability to obtain a court order requiring
the payment. In the context of the agreements described in proposed
Rule 21F-4(d)(3), the mechanism to compel the payment could include
the ability either to revive an action or to bring an action if the
signatory does not make the payments provided for in the agreement.
---------------------------------------------------------------------------

    We believe that paragraph (e)(1)(i) of the proposed definition
should generally be straightforward to apply. This part of the rule
encompasses any payment requirement that is expressly designated as
disgorgement, a penalty, or interest thereon. That money paid by a
wrongdoer in satisfaction of a disgorgement or penalty obligation may
thereafter be used to pay costs of a receiver, trustee, or fund
administrator would not change the analysis under this part of the
proposed rule. Because the wrongdoer was ordered to pay such money
pursuant to a disgorgement or penalty obligation, paragraph (e)(1)(i)
would be satisfied.
    With respect to paragraph (e)(1)(ii), only requirements to pay
money as relief for the underlying violations would qualify. Thus, for
example, if a court orders an asset freeze and appoints a receiver in a
Commission enforcement action, and, without separately entering a
disgorgement order, the court subsequently issues an order approving
the receiver's plan to distribute money to injured investors, we would
treat that second order as a monetary sanction under paragraph
(e)(1)(ii) of the proposed rule.\62\ However, if the receiver requests
approval to use frozen funds to pay creditors, taxes to a governmental
authority, attorney's fees, or other costs of the receivership, such
payments would not qualify ``as relief'' obtained because of the
successful enforcement action and would not constitute monetary
sanctions under paragraph (e)(1)(ii).
---------------------------------------------------------------------------

    \62\ Where a receiver is appointed to gather assets for
potential distribution to harmed investors, an award payment to a
meritorious whistleblower would not need to await actual
distribution of the receivership assets to the harmed investors. In
our view, the statutory requirements that the monetary sanctions be
both ``ordered'' and ``collected'' before a payment to a
whistleblower can be made would typically be satisfied at the time a
court approves the distribution to the harmed investors of assets
within the receiver's control. See Exchange Act section 21F(a)(4)
(``ordered'') & 21F(b)(1) (``collected''), 15 U.S.C. 78u-6(a)(4), &
78u-6(b)(1).
---------------------------------------------------------------------------

    In proposing the amended rule language, we have also considered the
legislative purpose underlying whistleblower award provisions
generally. In our view, these types of award programs are intended to
allow a whistleblower to receive a percentage of the monetary relief
that the government is able to obtain as remedies for the violations
that are the subject of the action to which the whistleblower's
information led. The approach outlined above would comport with this
understanding of how whistleblower award programs generally
operate.\63\ We have also considered the fact that a broader approach
could lead to potentially irrational results such as the Commission
paying whistleblowers a share of any discovery sanctions or EAJA fees
imposed on the government, even though such monetary sanctions would
have no connection to the information the whistleblower provided that
led to the enforcement action and that contributed to the success of
that action.
---------------------------------------------------------------------------

    \63\ Cf. S. Rep. 111-176 at 110 (2010) (``The Whistleblower
Program aims to motivate those with inside knowledge to come forward
and assist the Government to identify and prosecute persons who have
violated securities laws and recover money for victims of financial
fraud.'').
---------------------------------------------------------------------------

Request for Comment
    5. Should ``monetary sanctions'' be defined as those obligations to
pay money that are obtained ``as relief'' for the violations that are
charged in a Commission enforcement action or a related action? Why or
why not?
    6. Are there additional classes of monetary requirements or payment
obligations (beyond those discussed above) that may be ordered in an
action covered by the Commission's whistleblower award program that the

Commission should specifically consider or address in clarifying the
definition of ``monetary sanctions''?

C. Proposed Amendment to Exchange Act Rule 21F-3(b)(1) 64
Defining ``related action'' 65
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    \64\ 17 CFR 240.21F-3(b)(1).
    \65\ The Commission anticipates this proposed rule change, if
adopted, would apply only to covered-action and related action award
applications that are connected to a Notice of Covered Action (see
Exchange Act Rule 21F-10(a), 17 CFR 240.21F-10(a)) posted on or
after effective date of the final rules.
---------------------------------------------------------------------------

    Under Exchange Act Section 21F(b) \66\ and Rule 21F-11,\67\ any
whistleblower who obtains an award based on a Commission enforcement
action may be eligible for an award based on monetary sanctions that
are collected in a related action. Exchange Act Section 21F(a)(5) \68\
and Rule 21F-3(b)(1) \69\ provide that a related action is a judicial
or administrative action that is both: (i) Brought by DOJ, an
appropriate regulatory authority (as defined in Rule 21F-4(g)),\70\ a
self-regulatory organization (as defined in Rule 21F-4(h) \71\), or a
state attorney general in a criminal case; and (ii) based on the same
original information that the whistleblower voluntarily provided to the
Commission and that led to the successful enforcement of the Commission
action.
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    \66\ 15 U.S.C. 78u-6(b).
    \67\ 17 CFR 240.21F-11.
    \68\ 15 U.S.C. 78u-6(a)(5).
    \69\ 17 CFR 240.21F-3(b)(1).
    \70\ 17 CFR 240.21F-4(g).
    \71\ 17 CFR 240.21F-4(h).
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    The proposed amendment adding paragraph (b)(4) to Rule 21F-3 would
apply in situations where both the Commission's whistleblower program
and a second, separate whistleblower award scheme have potential
application to the same action. During the implementation and
administration of our whistleblower program, it has become increasingly
apparent to us that additional, separate whistleblower award schemes
might apply to an action that could otherwise qualify as a related
action. In this regard we note that, since the adoption of our
whistleblower program rules, two states have adopted their own
whistleblower award programs in connection with state securities-law
enforcement actions.\72\ We are also aware that DOJ might pursue law-
enforcement actions that potentially implicate both the Commission's
whistleblower program and the whistleblower award program that the
Internal Revenue Service (``IRS'') administers.\73\ Further, Congress
in 2015 established a new motor-vehicle-safety whistleblower award
program that allows employees or contractors of a motor-vehicle
manufacturer, parts supplier, or dealership who report serious
violations of federal vehicle-safety laws to obtain an award of 10
percent to 30 percent of any monetary sanction over $1 million that the
Federal Government recovers based on that information.\74\ To date, the
Commission has never paid an award on a matter where a second
whistleblower program also potentially applied to the same matter, nor
has the Commission ever indicated that it would do so.
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    \72\ In 2011, Utah established a whistleblower-award scheme to
provide rewards of up to 30 percent of the money collected in state
securities-law enforcement actions. Utah Code Annotated 61-1-101 et
seq. The following year, Indiana enacted a whistleblower award
scheme to provide rewards up to 10 percent of the monies collected
in a state securities-law enforcement action. Indiana Code 23-19-7-1
et seq.
    \73\ 26 U.S.C. 7623.
    \74\ 49 U.S.C. 30172 (enacted by Section 24352 of the Fixing
America's Surface Transportation Act of 2015 (FAST Act), Pub. L.
114-94).
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    Proposed paragraph (b)(4) would expressly authorize two mechanisms
for the Commission to use in situations where at least one other award
scheme might also apply. First, the first sentence of proposed
paragraph (b)(4) would provide that, notwithstanding the definition of
related action in Rule 21F-3(b)(1), if a judicial or administrative
action is subject to a separate monetary award program established by
the Federal Government, a state government, or a self-regulatory
organization, the Commission will deem the action a related action only
if the Commission finds (based on the unique facts and circumstances of
the action) that its whistleblower program has the more direct or
relevant connection to the action.\75\ In analyzing this question, the
Commission will consider whether Congress (or a state) has enacted a
specific whistleblower program that appears to apply directly to the
case at hand; if so, we will generally determine that Congress
reasonably would not have intended our more general, secondary
``related action'' award mechanism to sweep in the case. In reaching
this determinination, we would look to the complaint in the action, the
overall monetary sanctions recovered (e.g., are they principally tied
to a different whistleblower program for which Congress provided an
award mechanism), and the court's final order to assess which award
program has the closer relationship to the overall case. We might also
consult the agency involved with that other case to obtain its overall
assessment of whether the action is in fact one that is primarily tied
to violations for which Congress (or the states) have established a
more specifically applicable whistleblower program and for which our
general, ``related action'' award mechanism should not apply.
Critically, this standard would not yield a clear brightline but would
turn on the particular facts and circumstances of the case at hand and
the Commission would explain the grounds for its conclusion in any
final order.
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    \75\ Notably, the Utah whistleblower-award program (see note 72,
supra) provides that a person may not receive an award thereunder if
he or she ``qualifies for an award as described in Section 21F of
the Securities Exchange Act, 15 U.S.C. Sec. 78u-6, and regulations
issued under that section.'' We assume that this provision is
intended to prevent a double recovery on a Utah criminal-enforcement
action brought by the State's Attorney General that could
potentially be covered by both the Commission's whistleblower
program and the Utah program.
---------------------------------------------------------------------------

    Second, the second sentence of proposed paragraph (b)(4) provides
that even if the Commission determines to deem the action a related
action, the Commission will not make an award to you for the related
action if you have already been granted an award by the authority
responsible for administering the other whistleblower award program;
further, if you were denied an award by the other award program, you
will not be permitted to readjudicate any issues before the Commission
that the authority responsible for administering the other
whistleblower award program resolved against you as part of the award
denial.\76\ The proposed rule provides that, if the Commission makes an
award before an award determination is finalized by the authority
responsible for administering the other award scheme, the Commission
would condition its award on the meritorious whistleblower making a
prompt, irrevocable waiver of any claim to an award from the other
award scheme.
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    \76\ This sentence of proposed paragraph (b)(4) is modeled after
existing Rule 21F-3(b)(3), 17 CFR 240.21F-3(b)(3), which is
discussed further below.
---------------------------------------------------------------------------

    The proposed rule also provides that, in determining whether a
potential related action has a more direct or relevant connection to
the Commission's whistleblower program than another award program, the
Commission would consider the nature, scope, and impact of the
misconduct charged in the purported related action, and its
relationship to the federal securities laws. This inquiry would include
consideration of, among other things: (i) The relative extent to which
the misconduct charged in the potential related action implicates the
public policy interests underlying the federal securities laws (e.g.,
investor protection) versus other law-enforcement or

regulatory interests (e.g., tax collection or fraud against the Federal
Government); (ii) the degree to which the monetary sanctions imposed in
the potential related action are attributable to conduct that also
underlies the federal securities law violations that were the subject
of the Commission's enforcement action; and (iii) whether the potential
related action involves state-law claims and the extent to which the
state may have a whistleblower award scheme that potentially applies to
that type of law-enforcement action.\77\ Thus, for example, if an
action by DOJ charges a scheme to avoid tax obligations and imposes
monetary sanctions, we would expect that such an action would lack a
more direct or relevant connection to the Commission's whistleblower
program relative to the IRS's award program.\78\ As a second example,
where a state whistleblower award program is available to award a
whistleblower whose tip leads to state criminal charges in connection
with a fraudulent securities offering, we anticipate that the
Commission would not view such an action as a related action under the
test in proposed paragraph (b)(4). In this circumstance, the state
program would be the more direct or relevant program and the
appropriate avenue for the whistleblower to seek an award.
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    \77\ To the extent that a state adopts a whistleblower award
program relating directly to securities law violations, we would
generally anticipate the Commission would find that the state award
scheme should apply over the Commission's award program. However, to
the extent that the particular state criminal action may implicate
an award scheme that is not directed at securities-law violations
(such as a state-award scheme focused on consumer protection), the
Commission might conclude that our whistleblower program should not
apply based on an assessment of the particular facts and
circumstances of the state action.
    \78\ By contrast, to the extent that a DOJ enforcement action
centers on insider-trading violations that are based on the same
misconduct that was the subject of the Commission's covered action,
and that most of the monetary sanctions arise from the insider-
trading violations, the Commission would likely treat the matter as
a related action notwithstanding any potential restitution ordered
due to any tax violations included within the case.
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    In proposing paragraph (b)(4), we acknowledge that, on its face,
Exchange Act Section 21F does not exclude from the definition of
related actions those judicial or administrative actions that have a
less direct or relevant connection to our whistleblower program than
another whistleblower scheme. We nonetheless perceive ambiguity when
considering this language in the context of the overall statutory
scheme. We believe that an understanding focused exclusively on the
statutory definition of related action would produce a result that
Congress neither contemplated nor intended. We believe that our
rulemaking authority under the Exchange Act and our authority to define
Exchange Act terms permit us to reach this interpretation.\79\ We base
this determination on several considerations.
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    \79\ Section 23(a)(1) of the Exchange Act, 15 U.S.C. 78w(a)(1),
expressly provides the Commission the ``power to make such rules and
regulations as may be necessary or appropriate to implement the
provisions'' of the Exchange Act, and has long been understood to
provide the Commission with broad authority to issue rules and
regulations carrying the force of law. Similarly, Section 21F(j), 15
U.S.C. 78u-6(j), grants us ``the authority to issue such rules and
regulations as may be necessary or appropriate to implement'' the
whistleblower award program. In addition, we have broad definitional
authority pursuant to Section 3(b) of the Exchange Act, 15 U.S.C.
78c(b), which provides us with the ``power by rules and regulations
to define . . . terms used in [the Exchange Act].''
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    First, when Congress established the Commission's whistleblower
program, it set a firm ceiling on the maximum amount that should be
awarded for any particular action--``not more than 30 percent, in
total, of what has been collected of the monetary sanctions imposed''
in the action.\80\ Indeed, it appears that in establishing federal
whistleblower award programs in the modern era Congress has determined
that an award of more than thirty percent on any particular action is
not necessary or appropriate.\81\ Yet if both the Commission's
whistleblower program and another whistleblower award scheme were to
apply to the same action, this would create the potential for a total
award exceeding the 30-percent ceiling due to a dual recovery.
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    \80\ 15 U.S.C. 78u-6(b)(1)(B).
    \81\ See, e.g., 7 U.S.C. 26 (providing under the CFTC's
whistleblower program for awards of ``not more than 30 percent, in
total, of what has been collected of the monetary sanctions imposed
in the action or related actions''); 26 U.S.C. 7623(b)(1) (providing
under the IRS administered whistleblower award program for ``an
award . . . not more than 30 percent of the collected proceeds
(including penalties, interest, additions to tax, and additional
amounts)''); 31 U.S.C. 3730 (providing in a False Claims Action that
a qui tam plaintiff shall receive ``not more than 30 percent of the
proceeds of the action or settlement''). Our preliminary analysis
indicates that Congress's determination not to go above a 30-percent
ceiling for awards appears to comport with a similar determination
by those states that have adopted their own false claims acts and
securities-law whistleblower programs.
---------------------------------------------------------------------------

    Second, the purpose of the related action award component of the
Commission's whistleblower program was to allow meritorious
whistleblowers the opportunity to obtain additional financial awards
for the ancillary recoveries that may result from the same original
information that the whistleblowers gave to the Commission. In this
way, the potential for a related action recovery can further enhance
the incentives for an individual to come forward to the Commission. But
neither the text of Section 21F, nor the relevant legislative history
\82\ suggests that Congress considered the unusual situation in which
there may be a separate whistleblower award scheme that has a more
direct or relevant connection to the judicial or administrative
action,\83\ and that would therefore be providing a financial incentive
to encourage individuals to report misconduct without the need for the
incentive effect produced by the related-action component of the
Commission's award program.
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    \82\ See generally S. Rep. No. 111-176 at 110-12 (2010).
    \83\ See generally Radzanower v. Touche Ross & Co., 426 U.S.
148, 153 (1976) (``It is a basic principle of statutory construction
that a statute dealing with a narrow, precise, and specific subject
is not submerged by a later enacted statute covering a more
generalized spectrum.''); Anthony Scalia & Bryan A. Garner, Reading
Law: The Interpretation of Legal Texts (2012) at 183 (noting that a
specifically applicable statutory provision should govern a more
general provision because ``the specific provision comes closer to
addressing the very problem posed by the case at hand and is thus
more deserving of credence''); id. at 184 (explaining that ``the
general/specific canon [of statutory construction] does not meant
that the existence of a contradictory specific provision voids the
general provision[,]'' but rather that ``its application to cases
covered by the specific provision is suspended'').
---------------------------------------------------------------------------

    Third, we believe that permitting potential whistleblowers to
recover under both our award program and a separate award scheme for
the same action would produce the irrational result of encouraging
multiple ``bites at the apple'' in adjudicating claims for the same
action and potentially allowing multiple recoveries.\84\ In the
adopting release that accompanied the original whistleblower rules, the
Commission recognized the irrational result that would flow from
allowing a whistleblower to have multiple separate opportunities to
adjudicate his or her contributions to a case and to potentially obtain
multiple separate rewards on that same enforcement action. Further, the
Commission barred this result from occurring in the specific contexts
that the Commission considered at the time it adopted the whistleblower
program rules. Specifically, the Commission adopted Rule 21F-3(b)(3),
which provides that the Commission will not pay on a related action if
the whistleblower program administered by the Commodity Futures Trading

Commission (``CFTC'') has issued an award for the same action, nor will
the Commission allow a whistleblower to readjudicate any issues decided
against the whistleblower as part of the CFTC's award denial. In
adopting that rule, the Commission made clear its view that a
whistleblower should neither have two recoveries on the same action nor
multiple bites at the adjudicatory apple.\85\ Relatedly, the Commission
explained in the adopting release that it would for similar reasons not
make an award to a whistleblower who was also a qui tam plaintiff under
the False Claims Act.\86\ Although at the time of the original
rulemaking for the whistleblower program the Commission did not
expressly consider the potential for multiple separate awards due to
the existence of any other award schemes (such as the whistleblower
program administered by the IRS), the principles underlying Rule 21F-
3(b)(3) appear similarly relevant to that circumstance.
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    \84\ Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1068
(D.C. Cir. 1998) (``If a literal construction of the words of a
statute be absurd, the act must be so construed as to avoid the
absurdity.''); see also United States v. X-Citement Video, Inc., 513
U.S. 64, 68-69 (1994) (rejecting the ``most natural grammatical
reading'' of a statute to avoid ``absurd'' results).
    \85\ 76 FR 34300, 34305/3.
    \86\ Id. n.52 (``[W]e 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.'').
---------------------------------------------------------------------------

    To illustrate the significance of our existing rule and the rule
that we are proposing, consider a future DOJ enforcement action
involving predominately tax claims that results from the same original
information that a Commission whistleblower shared with both the
Commission and the CFTC. In this scenario, it is entirely possible
based purely on the words of the relevant statutes that the SEC and the
CFTC could each have to pay up to 30 percent on the DOJ action, and
that the IRS could have to pay an additional 30 percent; the Commission
whistleblower could thus take home an amount that is equal to as much
as 90 percent of the money collected for the violations in the DOJ
action. In our view, this is an ``obviously unintended'' outcome that
would ``make[ ] no substantive sense,'' \87\ and the rule that we
already have in place and the rule that we are proposing would prevent
it and similar duplicative payments from multiple whistleblower
programs.
---------------------------------------------------------------------------

    \87\ Scalia & Garner, supra note 33, at 235, 239 (emphasis in
original).
---------------------------------------------------------------------------

    In addition to the foregoing, we are also proposing two amendments
to the definition of ``related action'' in Rule 21F-3(b)(1). First, the
proposed amendment would add clarity to the existing requirement that,
to potentially obtain an award for a related action, a whistleblower
must have provided to the other entity (or the Commission must have
shared with the other entity) the same original information that the
whistleblower provided to the Commission and that led to the successful
enforcement of the Commission action.\88\ We think that where the
Commission staff determines to share the whistleblower's information
with the other entity, it is consistent with the purposes of the
program to allow an award even if the whistleblower did not directly
step forward to that agency.\89\
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    \88\ See Rules 21F-3(b)(2), 17 CFR 240.21F-3(b)(2), and 21F-
4(c)(1)-(3), 17 CFR 240.21F-4(c)(1)-(3).
    \89\ Section 21F provides express authority for the Commission
to share information that may identify a whistleblower with other
authorities that may, in turn, bring related actions. See 15 U.S.C.
78u-6(a)(5) and (h)(2)(D)(i).
---------------------------------------------------------------------------

    This new language to the definition of ``related action'' merely
clarifies what is already required by Exchange Act Rule 21F-11(c),\90\
which provides in relevant part that a whistleblower must ``demonstrate
[that the whistleblower] directly (or through the Commission)
voluntarily provided the governmental agency, regulatory authority or
self-regulatory organization the same original information that led to
the Commission's successful covered action[.]'' Further, we believe
that this interpretation is consistent with the requirement in Section
21F(a)(5) of the Exchange Act \91\ that a related action must be
``based upon the original information provided by a whistleblower.'' To
be ``based upon'' the whistleblower's original information, in our
view, the same information that the whistleblower provided to the
Commission must have been provided to the other authority and that
information must have itself directly contributed to the other
authority's investigative or litigation efforts leading to the success
of that authority's enforcement action. In practice, this can occur
either because the whistleblower provided the original information to
the other authority, or because the Commission through its information
sharing mechanisms provided the original information to the other
authority, and in either case the authority utilized that information
directly in its own investigation and/or its resulting enforcement
action.
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    \90\ 17 CFR 240.21F-11(c).
    \91\ 15 U.S.C. 78u-6(a)(5).
---------------------------------------------------------------------------

    We note that, under our existing interpretation of the ``based
upon'' language in Section 21F(a)(5) and the clarifying rule that we
are proposing, the other authority's enforcement action would not be a
related action in circumstances where the other authority's enforcement
action was in some manner ``based upon'' the results or findings of the
Commission's enforcement action without the other authority ever
actually receiving and utilizing the whistleblower's original
information. Rather, in this situation the whistleblower's original
information could, at best, be described as a derivative factor
potentially contributing to the success of the other authority's
action, and we deem this too attenuated a causal connection to meet the
``based upon'' standard, which in our view requires actual reliance on
the whistleblower's original information by the other entity.\92\
Indeed, in these circumstances any claim for an award would fail under
Rule 21F-3(b)(2), which unambiguously requires that the success of a
related action be based upon ``the same original information that the
whistleblower gave to the Commission'' as a predicate to the Commission
authorizing a related action award.\93\
---------------------------------------------------------------------------

    \92\ The ``based upon'' language in Exchange Act section
21F(a)(5), 15 U.S.C. 78u-6(a)(5) is separate and distinct from the
requirement that the whistleblower's original information must have
``led to'' the success of the other entity's action, see Exchange
Act section 21F(b)(1), 15 U.S.C. 78u-6(b)(1); see also Exchange Act
Rule 21F-4(c), 17 CFR 240.21F-4(c). Even if a whistleblower
satisfies the ``based upon'' standard because his information was
directly provided to the other entity by the whistleblower or the
Commission, and used in some fashion by that entity, this does not
mean the whistleblower's information necessarily ``led to'' the
success of that action.
    \93\ 17 CFR 240.21F-3(b)(2). Rule 21F-3(b)(2) contemplates that
``the Commission may seek confirmation of the relevant facts
regarding the whistleblower's assistance from the authority that
brought the related action,'' and we will deny a related action
award where sufficient and reliable information cannot be obtained
from the other authority. 76 FR 34300, 34305/1. These requirements
would be rendered null if the ``based upon'' requirement could be
satisfied without the other authority actually receiving and
utilizing the whistleblower's original information.
---------------------------------------------------------------------------

    Second, we are making a technical modification to the definition of
``related action'' in Rule 21F-3(b)(1) that would make clear that the
existing clause ``based on'' the same original information that the
whistleblower voluntarily provided to the Commission, and that ``led
the Commission to obtain monetary sanctions totaling more than
$1,000,000,'' applies to all related actions and not just criminal
actions brought by a state attorney general. This technical
modification would conform the definition in the rule to the
substantive requirements of the statutory definition as set forth in
Section 21F(a)(6) of the Exchange Act.\94\
---------------------------------------------------------------------------

    \94\ 15 U.S.C. 78u-6(a)(6).
---------------------------------------------------------------------------

Request for Comment
    7. Is the proposed ``direct or relevant'' standard appropriate for
assessing whether an action should qualify as a

related action? Are there alternative formulations that should be
adopted instead?
    8. Instead of adopting the proposed rule, which would authorize the
Commission on a case-by-case basis to consider whether an action should
qualify as a related action, should the Commission adopt a categorical
exclusion from the definition of related action for any judicial or
administrative action that may have an alternative applicable award
scheme?
    9. As part of this rulemaking, we are considering whether to repeal
Exchange Act Rule 21F-3(b)(3), 17 CFR 240.21F-3(b)(3),\95\ so that
proposed Rule 21F-3(b)(4) would also apply to potential related actions
that might produce a double recovery with the CFTC's whistleblower
program. Existing Rule 21F-3(b)(3) applies somewhat differently than
our proposed Rule 21F-3(b)(4), as it does not provide the Commission
express authority to determine whether a potential related action is
more closely connected with the SEC's whistleblower program or the
CFTC's whistleblower program. Should we repeal existing Exchange Act
Rule 21F-3(b)(3) so that proposed Rule 21F-3(b)(4) would apply instead
to afford a uniform treatment for all potential related actions for
which multiple whistleblower programs might apply? Please explain.
---------------------------------------------------------------------------

    \95\ Exchange Act Rule 21F-3(b)(3) provides that the Commission
will not make an award to an individual for a related action if the
individual has already been granted an award by the CFTC for the
same action pursuant to its whistleblower program under Section 23
of the Commodity Exchange Act (7 U.S.C. 26). Similarly, if the CFTC
has previously denied an award to an individual in a related action,
the individual will be precluded from relitigating any issues before
the Commission that the CFTC resolved against the individual as part
of an award.
---------------------------------------------------------------------------

D. Proposed Amendment to Exchange Act Rule 21F-6 Regarding Awards to a
Single Whistleblower Below $2 Million or in Cases Yielding at Least
$100 Million in Collected Monetary Sanctions 96 and Guidance
on the Meaning of ``Unreasonable Delay'' Under Rule 21F-6.
---------------------------------------------------------------------------

    \96\ The Commission anticipates this proposed rule change, if
adopted, would apply only to covered-action and related-action award
applications that are connected to a Notice of Covered Action (see
Exchange Act Rule 21F-10(a), 17 CFR 240.21F-10(a)) posted on or
after effective date of the final rules.
---------------------------------------------------------------------------

    Rule 21F-6 \97\ establishes the analytical framework that the
Commission follows both in setting the appropriate percentage amount of
an award in connection with a particular Commission or related action
and in determining an individual percentage award for each
whistleblower where the Commission makes awards to more than one
whistleblower in connection with the same action. In the adopting
release accompanying the promulgation of the whistleblower program
rules, the Commission explained that Rule 21F-6 ``provides general
principles without mandating a particular result'' and ``the
determination of the appropriate percentage of a whistleblower award
will involve a highly individualized review of the facts and
circumstances surrounding each award using the analytical framework set
forth'' in the rule.\98\
---------------------------------------------------------------------------

    \97\ 17 CFR 240.21F-6.
    \98\ 76 FR 34300, 34331/2.
---------------------------------------------------------------------------

    Rule 21F-6 identifies four criteria that may increase an award
percentage and three criteria that may decrease a whistleblower's award
percentage. As provided in Rule 21F-6(a), the criteria that may
increase an award percentage are: (1) Significance of the information
provided by the whistleblower; (2) assistance provided by the
whistleblower; (3) law-enforcement interest in making a whistleblower
award; and (4) participation by the whistleblower in internal
compliance systems. As provided in Rule 21F-6(b), the criteria that may
decrease an award percentage are: (1) Culpability of the whistleblower;
(2) unreasonable reporting delay by the whistleblower; and (3)
interference with internal compliance and reporting systems by the
whistleblower.
    Proposed paragraph (c) would add to Rule 21F-6's existing
analytical framework by providing a mechanism for the Commission to
adjust upwards any awards that would potentially be below $2 million to
a single whistleblower. Specifically, proposed Rule 21F-6(c) would
provide that, if the resulting award after applying the award factors
specified in paragraphs (a) and (b) would yield a potential payout to a
single whistleblower below $2 million (or any such greater amount that
the Commission may periodically establish through publication of an
order in the Federal Register), the Commission may adjust the award
upward so that the likely total award payout to the whistleblower
reflects a dollar amount that the Commission determines is appropriate
to achieve the program's objectives of rewarding meritorious
whistleblowers and sufficiently incentivizing future whistleblowers who
might otherwise be concerned about the low dollar amount of a potential
award; provided that in no event shall this provision be utilized to
raise a potential award payout (as assessed by the Commission at the
time it makes the award determination) above $2 million (or by such
other amount as the Commission may designate by order) or will the
total amount awarded to all whistleblowers in the aggregate be greater
than 30 percent.
    We believe that proposed paragraph (c) could provide an important
new tool for the Commission to ensure that even in cases where the
collected monetary sanctions may be relatively small (and award amounts
correspondingly modest), whistleblowers could receive an appropriate
award for their efforts in coming forward to the Commission. We also
anticipate that, where the proposed rule is triggered, there would be a
presumption in favor of some award enhancement, though the precise
amount of the enhancement may vary from case to case depending on the
unique facts and circumstances at issue. In this way, we believe
proposed paragraph (c) could provide an important additional incentive
for potential whistleblowers to come forward.\99\
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    \99\ We believe that proposed paragraph (c) would in many
respects work similar to proposed paragraph (d), as discussed
further below; this would include, for example, how we would
determine whether the $2 million threshold is met in cases involving
joint whistleblowers. To the extent that either proposed paragraph
(c) or proposed paragraph (d) is triggered by a potential award, it
would open up discretion for the Commission to assess the award
factors in Exchange Act Rules 21F-6(a)-(b), 17 CFR 240.21F-6(a)-(b),
in terms of dollar amounts, not merely in terms of award
percentages. This would give the Commission, for example, the
authority to boost a 20 percent award upwards based on a
reassessment of the positive factors relative to the actual dollar
amounts at issue in the particular award. Thus, even if the
whistleblower might otherwise receive a 20 percent award on a small
case (for example, one with collections of $100,000), the Commission
could reassess the whistleblower's contributions in dollar terms and
determine to enhance the award upwards (potentially up to the 30
percent maximum, which in the particular example would yield a
payout of $30,000). The Commission could do so if it determines that
this enhancement in dollar terms would better acknowledge the
whistleblower's contribution and better help incentivize similarly
situated future whistleblowers. Further, in assessing whether the $2
million threshold has been, or likely will be satisfied, the
Commission will consider collectively the total award amounts from
all the Commission and related actions that were the result of the
whistleblower's original information.
---------------------------------------------------------------------------

    We note that the new authority proposed in paragraph (c) would come
with important limitations. Specifically, the Commission will not
adjust an award upward under the proposed provision if any of the
negative award factors that are identified in Exchange Act Rule 21F-
6(b) \100\--and which are specified above--were found to be present
with respect to the whistleblower's award claim, or if the

award claim triggers Exchange Act Rule 21F-16 (concerning awards to
whistleblowers who engage in culpable conduct).\101\ Thus, for example,
if a whistleblower whose award claim might otherwise be eligible for an
enhancement under this provision were found by the Commission to have
unreasonably delayed reporting to the Commission under Exchange Act
Rule 21F-6(b)(2), then the Commission could not increase his or her
award under this provision.
---------------------------------------------------------------------------

    \100\ 17 CFR 240.21F-6(d).
    \101\ 17 CFR 240.21F-16.
---------------------------------------------------------------------------

    In addition, we are proposing a new paragraph (d) that would add to
Rule 21F-6's existing analytical framework by providing a mechanism for
the Commission to conduct an enhanced review of awards in situations
where a whistleblower has provided information that led to the success
of one or more covered or related actions that, collectively, result in
at least $100 million in collected monetary sanctions. As we explain
below, under proposed paragraph (d), the Commission, first, would
consider the dollar amount of an award at given percentage levels in
determining whether and how to adjust the award based on the positive
and negative factors in paragraphs (a) and (b) of this section; and
second, the Commission could determine that an exceedingly large
potential payout resulting from the assessment under paragraphs (a) and
(b) was not reasonably necessary to fulfill the purposes of the program
and thus exercise its discretion to reduce the award to an appropriate
amount. The Commission's ability to reduce an award under this
provision would be subject to two significant limitations. First, in no
event could the Commission reduce the total payout for any award(s)
resulting from the whistleblower's original information below $30
million. Second, the Commission could not reduce the award for any
specific action such that the total amount paid to all whistleblowers
for that action would go below the 10 percent minimum statutory floor
of collected monetary sanctions in that action.\102\
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    \102\ For example, if the collected amount is $150 million, the
Commission could exercise its discretion to reduce a potential
payout of 25% ($37.5 million), but the Commission could not reduce
the award below $30 million. In another example, if the collected
amount is $400 million, the Commission could exercise its discretion
to reduce a potential payout of 25% ($100 million), but the
Commission could not reduce the award below 10% ($40 million).
Finally, if the collected amount is $150 million and the potential
payout is 18% ($27 million), then the Commission could not reduce
that award because it already is below the $30 million floor.
---------------------------------------------------------------------------

    An important principle underlying proposed paragraph (d) is that,
as the dollar value of an award amount grows exceedingly large, there
is a significant potential for a diminishing marginal benefit to the
program in terms of compensating the whistleblower and incentivizing
future whistleblowers. In these situations, we believe that it is in
the public interest that we scrutinize the dollar impact of these
awards more carefully in considering award enhancements and reductions
under the existing award criteria of paragraphs (a) and (b) of this
section and, further, where appropriate, adjust an award downward so
that the dollar amount of the payout is more in line with the program's
goals of rewarding whistleblowers and incentivizing future
whistleblowers from a cost-benefit perspective (again, subject to the
$30 million floor for any whistleblower subject to a reduction under
this provision and the 10 percent statutory minimum referenced above).
    As an illustration of a potential situation to which proposed
paragraph (d) might be utilized, consider the settlements that the
Commission and DOJ entered with Siemens AG in 2008. The total monetary
sanctions collected in these two actions was $800 million (the
Commission received $350 million in disgorgement of profits \103\ and
DOJ received $450 million in criminal penalties \104\). Suppose that
these two actions occurred today and that these actions were based on
original information voluntarily provided to the Commission by an
eligible whistleblower. In such a situation, the Commission would be
required to pay an award to that whistleblower of between $80 million
(a 10 percent award) and $240 million (a 30 percent award) for the two
actions. Critically, under the existing framework of Rule 21F-6--
without proposed paragraph (d)--the Commission in setting the
appropriate amount of an award would be unable to consider the
extraordinarily large dollar amounts that would be associated with any
assessments and adjustments made when applying the existing award
factors of Rule 21F-6; the Commission would also lack the authority to
adjust the award amount downward if it found that amount unnecessarily
large for purposes of achieving the whistleblower program's goals. So
if the hypothetical meritorious whistleblower were an individual who
did everything right in connection with his or her whistleblowing (that
is, he or she were the model whistleblower), the Commission would
almost certainly be obligated to pay this individual an award at or
near the maximum $240 million level under the existing rules. What
paragraph (d) would do, as we explain below, is to afford the
Commission the discretion to determine whether such an extraordinarily
large payout is actually necessary to further the whistleblower
program's goals of rewarding whistleblowers and incentivizing future
whistleblowers, and if not, proposed paragraph (d) would afford the
Commission the ability to adjust the actual payout to an award amount
that is closer to the $80 million minimum that would be required to be
paid pursuant to Section 21F(b). We believe that adopting paragraph (d)
to afford us a discretionary mechanism to make such common-sense
adjustments to extraordinarily large awards to ensure that they do not
exceed an amount that is appropriate to achieve the goals and interests
of the program is, to put it simply, good public policy.
---------------------------------------------------------------------------

    \103\ See SEC Litigation Release No. 20829 (dated Dec. 15, 2008)
(discussing the settlement reached SEC v. Siemens Aktiengellschaft,
Civ. Action No. 08-CV-02167 (D.D.C.)).
    \104\ See DOJ Press Release entitled ``Siemens AG and Three
Subsidiaries Plead Guilty to FCPA Violations and Agree to Pay $450
Million in Combined Criminal Fines'' (dated Dec. 15, 2008)
(available at: www.justice.gov/archive/opa/pr/2008/December/08-crm-1105.html).
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    Turning to the text of proposed paragraph (d), this new provision
would do two important things that should help us ensure that any large
awards are in fact aligned with the program's goals and not
unnecessarily large to achieve the program's goals. First, proposed
paragraph (d)(1) would permit the Commission to consider the potential
dollar amount of the payout to a whistleblower resulting from his or
her original information (in any Commission actions or related actions,
collectively) when applying each of the existing award criteria; when
the potential amount of an award payout could be in the range of 10 to
30 percent of at least $100 million, we believe it is reasonable and
appropriate to consider the adjustments that we make for each award
factor in dollar terms rather than to apply exclusively a percentage
assessment that does not take into account what those percentage
adjustments would translate to in actual dollars paid to the
whistleblower.\105\

This would allow us to consider the relative (or marginal) value of the
actual dollar amounts associated with any enhancements that we are
considering under the positive award factors. We think that this is
particularly important where the percentage enhancements are
corresponding with particularly large dollar enhancements because, to
the extent that individuals are motivated to come forward based on a
potential award, it is the total dollar payout that would be relevant
to them. Allowing us to assess each enhancement or reduction in dollar
terms should permit us to more realistically and concretely assess the
appropriate amount that is reasonably necessary to recognize a
whistleblower's contributions in cases involving large potential
awards.
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    \105\ The statutory framework that Section 21F establishes
appears to permit--and at a minimum does not expressly prohibit--the
Commission from considering the dollar amount of a potential award.
Indeed, the language in Section 21F refers to the ``amount of the
award,'' which appears to afford the Commission discretion to set
the awards based on a consideration of the appropriate dollar amount
that should be paid (provided that this dollar amount is between 10
percent and 30 percent of the collected monetary sanctions).
Notwithstanding the statutory language, the Commission's existing
rules do not expressly authorize the Commission to consider the
dollar amount of a potential award when setting the award
percentage. Proposed paragraph (d) would make it clear that the
Commission may consider the dollar amount of a potential award when
setting the award percentage where at least $100 million in monetary
sanctions has been collected.
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    Second, proposed paragraph (d)(2) would permit the Commission to
adjust the award downward if, after consideration of the existing award
factors in paragraphs (a) and (b) of this section, the Commission finds
that the potential award amount (from any Commission actions and
related actions, collectively) exceeds what is reasonably necessary to
reward the whistleblower and to incentivize similarly situated
whistleblowers.\106\ Importantly, proposed paragraph (d)(2) would not
mandate that the Commission make a downward adjustment. Further,
proposed paragraph (d)(2) would make clear that any adjustment to a
whistleblower's award under that paragraph shall not yield a potential
award payout (as assessed by the Commission at the time that it makes
the award determination) below $30 million, nor may any downward
adjustment result in the total amount awarded to all the meritorious
whistleblowers, collectively, for each covered or related action
constituting less than 10 percent of the monetary sanctions collected
in that action.
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    \106\ Notably, this authority to make a downward adjustment
would be available only if the resulting payout after applying the
existing award factors would be at least $30 million (or such
greater alternative amount that the Commission may periodically
establish through publication of an order in the Federal Register).
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    Critically, the $30 million reference in proposed rule (d)(2) would
not be a ceiling on awards, and we do not intend that it would be
applied as such. Rather, $30 million for a potential payout is the
floor below which we would not lower any award that is subject to a
reduction under the proposed rule. Further, the proposed amendment
would be triggered only in situations where a whistleblower (including
two or more individuals who acted together as a joint whistleblower)
provides information that leads to the success of one or more covered
actions and related actions that results in at least $100 million in
collected monetary sanctions.\107\ In the nearly seven years of
experience that we have had in implementing and administering the
whistleblower program, we have issued final orders granting 50
whistleblower awards to 55 individuals (including, as explained above,
individuals who acted as joint whistleblowers).\108\ To date, only two
Commission covered actions and related actions have crossed the
threshold of collecting at least $100 million in monetary sanctions and
for which the payout exceeded our proposed $30 million floor.\109\
Those two actions taken alone involved the payment of $112 million to
four individuals.
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    \107\ In assessing whether the $100 million threshold has been
crossed to invoke proposed paragraph (d), we preliminarily
anticipate considering not just the likely payout in any Commission
covered actions that resulted from the whistleblower's information,
but also any potential payout that might result from any related
actions that resulted from the whistleblower's information. Thus,
for example, if a Commission covered action and a related action
brought by the Department of Justice, and a related action brought
by an appropriate regulatory authority, collectively, resulted in
the collection of at least $100 million in monetary sanctions based
on a whistleblower's original information, then proposed paragraph
(d) would be triggered. We would then decide whether one or more of
the awards should be adjusted downward to yield a total payout that
complies with the terms of the proposed rule. Further, we note that
in the context of a joint whistleblower, for purposes of applying
the proposed rule, we would treat them collectively as one
whistleblower in applying proposed paragraph (d), including in
assessing whether the $100 million threshold is satisfied; however,
in determining whether and to what extent to make a downward
adjustment, we would expect to consider the need to appropriately
incentivize individuals even when acting jointly to come forward and
report to the Commission.
    \108\ These totals are through April 2018 and treat as single
awards several cases where whistleblowers' original information led
to multiple covered actions that were processed together in one
award Order recognizing the total contributions of the
whistleblower. Similarly, consistent with the approach proposed
above governing cases where we grant an award for both a Commission
enforcement action and a related action by another agency based on
the same information provided by the whistleblower (see 17 CFR
240.21F-3(b)), we consider covered-action awards together with their
corresponding related action awards as single whistleblower awards.
    \109\ One of the awards that exceeded $30 million was issued in
September 2014 for more than $30 million in a Commission action and
related actions. See Order Determining Whistleblower Award Claim,
Exchange Act Release No. 34-73174 (Sept. 22, 2014), available at
https://www.sec.gov/rules/other/2014/34-73174.pdf. Two other awards
were issued in March 2018 for $49 and $33 million, respectively, to
three individuals (two of whom were acting as joint whistleblowers)
in a single covered action. See Order Determining Whistleblower
Award Claim, Exchange Act Release No. 34-82897 (March 19, 2018),
available at https://www.sec.gov/rules/other/2018/34-82897.pdf.
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    We believe that the $100 million collected-monetary-sanctions
threshold reflects the appropriate level at or above which it would be
reasonable for the Commission to consider whether the likely award
payout from the collected monetary sanctions will exceed an amount that
is appropriate to achieve the program's goals. For matters involving
collected sanctions at or above the $100 million threshold, we think
the potential for a whistleblower award to exceed the amount necessary
to achieve the program's goals exists and that awards based on $100
million or more are sufficiently large to warrant heightened scrutiny
under the rule that we are proposing. Our proposed approach in
triggering proposed paragraph (d) based on the amount of monetary
sanctions collected is not unlike the approach that the DOJ utilizes
(and which some courts also utilize) in the context of the False Claims
Act (``FCA'') when determining the appropriate amount of an award to a
relator. Specifically, DOJ has developed a series of guidelines to
determine the appropriate size of an award, and one consideration that
may lead to a downward adjustment is whether the ``FCA recovery was
relatively large.'' \110\
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    \110\ See Claire M. Sylvia, The False Claims Act: Fraud Against
the Government section 8.4 (updated June 2018) (citing DOJ Relator's
Guidelines, reprinted in 11 False Claims Act and Qui Tam Q. Rev. 17
(Oct. 1997); see also U.S. ex rel. Simmons v. Samsung Electronics
Am., Inc., 116 F. Supp. 3d 575, 580-81 (quoting and applying the DOJ
award guidelines).
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    We similarly believe that the $30 million floor is appropriate. In
our view, there is a potential that as the payout to a whistleblower
grows beyond the $30 million floor, the marginal benefit of each
additional dollar paid may decrease to such an extent that, in terms of
furthering the program's overall goals, the payout may be more than is
reasonably necessary. In our judgment $30 million represents a
reasonable line at which to draw the floor.\111\ In this

regard, we note that utilizing 2016 data on net worth, an individual
who received just the $30 million floor--even allowing for a reduction
due to taxes--would find himself or herself in the range of the the top
99.5 percentile to 99.9 percentile of the U.S. population by net
worth.\112\ Further, the analysis conducted in Part VII(B)(5)
demonstrates for us that even this sum (again, allowing for a reduction
due to taxes) if modestly invested should produce a reasonable lifetime
income stream for most potential whistleblowers. We thus believe it is
appropriate and reasonable to afford the agency a mechanism to more
closely scrutinize awards that exceed this floor to determine whether
and to what extent they are necessary to reward the whistleblower or
incentivize similarly situated whistleblowers.
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    \111\ See, e.g., WorldCom, Inc. v. FCC, 238 F.3d 449, 462 (D.C.
Cir. 2001) (citation omitted) (explaining that ``[a]n agency has
`wide discretion' in making line-drawing decisions and `[t]he
relevant question is whether the agency's numbers are within a zone
of reasonableness' ''); see also, e.g., National Shooting Sports
Foundation, Inc. v. Jones, 716 F.3d 200, 214, (D.C. Cir. 2013)
(citation omitted) (``An agency `is not required to identify the
optimal threshold with pinpoint precision. It is only required to
identify the standard and explain its relationship to the underlying
regulatory concerns.'').
    \112\ In 2016, approximately 0.5 percent of the U.S. population
had a net worth of $16.12 million while 0.1 percent of the U.S.
population had a net worth of $43.1 million. See https://dqydj.com/net-worth-brackets-wealth-brackets-one-percent/.
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    While we believe that the $30 million floor should reflect an
amount that in most cases would be an extremely attractive inducement
for company insiders across many industries to come forward to report
securities-law violations, we recognize that future experience in the
years ahead could suggest that some adjustment is appropriate.\113\
Accordingly, to the extent that our experience with the program in
future years may suggest that an adjustment to the floor is
appropriate, we propose to establish a mechanism by which the
Commission may publicly notice an order announcing such an increase by
publishing it in the Federal Register.
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    \113\ The economic analysis, infra Part VII, discusses various
potential annual incomes that a meritorious whistleblower might
obtain from investing a $30 million award payout in various types of
annuities. We note that, to the extent that certain whistleblowers
may experience significant harmful consequences, such as large
financial sacrifices or career-ending ramifications, as a result of
their whistleblowing activities, the proposed rule (should it be
triggered by the potential payout) would allow the Commission the
flexibility to consider these particular facts and circumstances to
determine an appropriate award level. Proposed paragraph (d) would
allow the Commission similar flexibility in situations involving
multiple individuals acting as a joint whistleblower.
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    In considering the appropriateness of the $30 million floor below
which we could not make a downward departure for any payouts stemming
from a whistleblower's original information, we also note that the
monetary incentive may often be an important reason a whistleblower
comes forward, but it is typically not the only reason in our
experience to date. In this regard, we note that the monetary incentive
is one component in a package of reporting incentives made available
under Section 21F, which includes employment retaliation protections
and confidentiality requirements (including, critically, the ability of
whistleblowers to remain anonymous through the course of an
investigation and resulting enforcement action).\114\ Indeed, our
experience to date has been that approximately one-half of the
whistleblowers who have received awards for information regarding their
current or former employers took advantage of the opportunity to submit
their tips to the Commission anonymously; the ability to report
anonymously is an additional attractive feature of our program that
helps to encourage company insiders and others to come forward by
lessening their fear of potential exposure.
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    \114\ See 15 U.S.C. 78u-6(d) (anonymity); id. 78u-6(h)(1)
(employment retaliation protection); id. 78u-6(h)(2)
(confidentiality protections); see also 17 CFR 240.21F-9(c) and
240.21F-10(c).
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    In advancing proposed paragraph (d), we are mindful of our own
responsibility to investors and the general public to ensure that the
Investor Protection Fund (IPF) that Congress established to fund awards
is used efficiently and effectively to achieve the program's
objectives.\115\ We recognize that the Commission has obtained
significant monetary judgments against parties in enforcement actions
in recent years. Several individual matters involved orders in excess
of $300 million in monetary sanctions in FY-2016 and FY-2017.\116\ If
there were an eligible whistleblower in one of these matters, and
assuming the Commission collected the amounts ordered, an exceedingly
large whistleblower award, beyond what we believe was intended when the
program was established, could result. Multiple such awards would, in
turn, cause the funds in the IPF to be diminished. As of the end May
2018, the balance of the IPF for the first time fell below the $300
million threshold that triggers the statutory replenishment mechanism;
this occurred when the Commission paid $83 million--its largest payout
to date on an enforcement action--to three individuals.\117\ Whenever
the reserve in the IPF falls below $300 million, Section 21F(g)(3)
requires the Commission to replenish the IPF.\118\ These funds
otherwise would be directed to the Treasury, where they could be made
available for use in funding other valuable public programs.
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    \115\ See Exchange Act section 21F(g), 15 U.S.C. 78u-6(g).
    \116\ See, e.g., SEC Division of Enforcement Annual Report for
2017 (Nov. 15, 2017), available at https://www.sec.gov/files/enforcement-annual-report-2017.pdf.
    \117\ At the end of 2010, the IPF had just under $452 million in
it, with no awards having yet been made. See Annual Report on the
Dodd-Frank Whistleblower Program, Fiscal Year 2011, at 8 (available
at: https://www.sec.gov/files/whistleblower-annual-report-2011.pdf),
and by the end of fiscal year 2017, the IPF had approximately $322
million in it. Thus, from the end of 2010 until the end of fiscal
year 2017, approximately $130 million in awards were paid out. The
$83 million awards that were just paid for a single enforcement
action were approximately equal to 64% of the sum of all of the
other awards that the Commission had paid up through fiscal year
2017.
    \118\ See 15 U.S.C. 78u-6(g)(3).
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    In light of the foregoing, we believe that, where a whistleblower's
original information leads to Commission or related actions that,
collectively, involve at least $100 million in collected monetary
sanctions, it is consistent with the interests of investors and the
broader public interest that the Commission have a mechanism to ensure
that the payout does not exceed an amount beyond what is reasonably
necessary to achieve the program's goals and, to the extent that it is,
to adjust the award percentage so that it better aligns with those
goals. In our view, proposed paragraph (d) would provide such a
mechanism if adopted.
    We generally anticipate that the Commission's application of
proposed paragraph (d) would be based on the unique facts and
circumstances of each award matter. We believe that in determining
whether a payout exceeds what is appropriate to achieve the program's
objectives, the Commission would carefully assess the potential payout
in relation to both any unusually detrimental circumstances that impact
the whistleblower and the level of financial incentive that may be
necessary to encourage future similarly situated whistleblowers to come
forward. Facts that would be relevant to determining whether the large
payout may be appropriate given the specific whistleblower's
circumstances include, for example, whether the whistleblower made an
extraordinary and highly unusual sacrifice by coming forward (such as
placing himself or herself in legal jeopardy to bring the Commission
information that it would otherwise not have been able to obtain or
demonstrably suffering career-ending consequences commensurate with the
potential large award). In a situation involving two or more
individuals acting as a joint whistleblower, we would consider the need
to appropriately incentivize individuals even when acting jointly to
come forward and report to the Commission.

Facts that would be relevant to determining whether the large payout is
necessary and appropriate to encourage future similarly situated
whistleblowers to come forward include the industry in which
knowledgeable whistleblowers might work, the type of position held by
that whistleblower,\119\ and the compensation levels within that
industry,\120\ and whether potential whistleblowers may be located
overseas and the likely compensation levels in those countries (to the
extent available).\121\
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    \119\ According to the Office of the Whistleblower, of the 55
individuals who have received awards, approximately 10 percent were