[Federal Register Volume 85, Number 215 (Thursday, November 5, 2020)]
[Rules and Regulations]
[Pages 70898-70948]
[FR Doc No: 2020-21444]

Vol. 85

Thursday,

No. 215

November 5, 2020

Part III

Securities and Exchange Commission

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17 CFR Parts 240 and 249

Whistleblower Program Rules; Final Rule

Federal Register / Vol. 85 , No. 215 / Thursday, November 5, 2020 /
Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-89963; File No. S7-16-18]
RIN 3235-AM11

Whistleblower Program Rules

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting several amendments to the Commission's rules implementing its
congressionally mandated whistleblower program. Section 21F of the
Securities Exchange Act of 1934 (``Exchange Act'') provides, among
other things, that the Commission shall pay--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, an aggregate amount,
determined in the Commission's discretion, that is equal to not less
than 10 percent, and not more than 30 percent, of monetary sanctions
that have been collected in the covered or related actions. The
Commission is adopting various amendments that are intended to provide
greater transparency, efficiency and clarity to whistleblowers, to
ensure whistleblowers are properly incentivized, and to continue to
properly award whistleblowers to the maximum extent appropriate and
with maximum efficiency. The Commission is also making several
technical amendments, and adopting interpretive guidance concerning the
term ``independent analysis.''

DATES: The final rules are effective December 7, 2020. For application
dates for each amendment, see the table in Section III.

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

SUPPLEMENTARY INFORMATION: The Commission is amending the following
rules and adopting a new rule.

                               Amendments
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                                                           CFR citation
                  Commission reference                       (17 CFR)
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Rule 21F-2..............................................  Sec.   240.21F-
                                                                       2
Rule 21F-3..............................................  Sec.   240.21F-
                                                                       3
Rule 21F-4..............................................  Sec.   240.21F-
                                                                       4
Rule 21F-6..............................................  Sec.   240.21F-
                                                                       6
Rule 21F-7..............................................  Sec.   240.21F-
                                                                       7
Rule 21F-8..............................................  Sec.   240.21F-
                                                                       8
Rule 21F-9..............................................  Sec.   240.21F-
                                                                       9
Rule 21F-10.............................................  Sec.   240.21F-
                                                                      10
Rule 21F-11.............................................  Sec.   240.21F-
                                                                      11
Rule 21F-12.............................................  Sec.   240.21F-
                                                                      12
Rule 21F-13.............................................  Sec.   240.21F-
                                                                      13
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                        New Rule
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Rule 21F-18.............................................  Sec.   240.21F-
                                                                      18
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I. Background and Summary
    A. The Whistleblower Award Program
    B. Procedural Background and Summary of the Amendments Being
Adopted
II. Description of Final Rule Amendments
    A. Rule 21F-4(d)--Definition of ``action''
    B. Rule 21F-4(e)--Definition of ``monetary sanctions''
    C. Amendments to Exchange Act Rule 21F-3(b) Defining ``related
action''
    D. Rule 21F-6(c)--Establishment of a Presumption of the Maximum
Statutory Amount for Certain Awards
    E. Rule 21F-6--Consideration of Dollar or Percentage Amounts in
Applying the Award Factors
    G. Amendment to Exchange Act Rule 21F-2--Whistleblower Status,
Award Eligibility, and Confidentiality and Retaliation Protection
    H. Rule 21F-8(d)--Forms Used for Whistleblower Program
    I. Rule 21F-8(e)--Claimants Who Submit False Information or
Abuse Award Application Process
    J. Rule 21F-9--Procedures for Submitting Original Information
    K. Amendments to Exchange Act Rule 21F-12--Materials That May
Form the Basis of the Commission's Award Determination
    L. Amendment to Exchange Act Rule 21F-13--The Administrative
Record on Appeal
    M. Adoption of Exchange Act Rule 21F-18--Summary Disposition
Process
    N. Technical Amendment to Rule 21F-4(c)(2)
    O. Interpretive Guidance Regarding the Meaning and Application
of ``independent analysis''
III. Effective Date and Applicability Dates
IV. Other Matters
V. Paperwork Reduction Act
VI. Economic Analysis
    A. Economic Baseline
    B. Analysis of Benefits, Costs, and Economic Effects of the
Adopted Rules
    C. Effects of the Rules on Efficiency, Competition, and Capital
Formation
VII. Regulatory Flexibility Act
VIII. Statutory Basis

I. Background and Summary

    The Commission's whistleblower program has made important
contributions to the agency's efforts to enforce the federal securities
laws. Original information provided by whistleblowers has led to
enforcement actions in which the Commission has obtained more than $2.5
billion in financial remedies, including more than $1.4 billion in
disgorgement of ill-gotten gains and interest, of which almost $750
million has been or is scheduled to be returned to harmed investors. In
recognition of the important contributions of whistleblowers, the
Commission has ordered over $523 million to 97 individuals in 80
enforcement actions whose original information led to the success of
Commission actions and, in some instances, related actions brought by
other enforcement authorities against wrongdoers.

A. The Whistleblower Award Program

    Congress established the Commission's whistleblower program in July
2010 by adding Section 21F to the Exchange Act. 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 a covered
judicial or administrative action.\1\ Section 21F also directs that the
awards must be an aggregate amount (the ``Award Amount''), determined
in the Commission's discretion, that is equal to not less than 10
percent, and not more than 30 percent, of what has been collected in
the monetary sanctions imposed in the covered action and certain
related actions.\2\ Further, Section 21F provides that monetary awards
to whistleblowers shall be paid from a special fund that Congress
established called the Investor Protection Fund (``IPF'').\3\
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    \1\ 15 U.S.C. 78u-6(a)(1).
    \2\ 15 U.S.C. 78u-6(a)(5).
    \3\ The IPF, which was established as part of the whistleblower
program, is a statutorily established fund overseen by the U.S.
Department of the Treasury that serves primarily as the funding
source for the Commission's whistleblower awards. Additionally, as
detailed in Exchange Act Section 21F(g)(3), 15 U.S.C. 78u-6, the IPF
has a statutorily created self-replenishing process and is not
contingent on annual appropriations from Congress.
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    In May 2011, the Commission adopted a set of rules to implement the
whistleblower program. Those rules, which are codified at 17 CFR
240.21F-1 through 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, specify the form and manner through which an individual
must submit information to qualify for an award, and establish the
procedures for determining the Award Amounts.

B. Procedural Background and Summary of the Amendments Being Adopted

    On June 28, 2018, the Commission proposed for public comment a
package of rule amendments to the Commission's existing whistleblower
rules (see Exchange Act Rules 21F-1 through 21F-17). These amendments
were designed to enhance claim processing efficiency, clarify and bring
greater transparency to the framework the Commission utilizes to
exercise its discretion in determining Award Amounts, and otherwise
address specific issues that have developed during the ten-year history
of the whistleblower program.
    For example, the amendments are intended to provide additional
efficiency and transparency to the extent possible regarding the
application of the existing award factors specified in Rule 21F-6(a)
and (b) (the ``Award Factors''), individually and collectively,
particularly for awards where the statutory maximum award of 30 percent
is $5 million or less, which represent the vast majority (in number) of
all awards.\4\ Additionally, because whistleblowers entitled to receive
awards pursuant to the Commission's rules should receive their awards
as quickly as reasonably practicable, the Commission is implementing
mechanisms to increase the effectiveness and efficiency of its award
determination process.
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    \4\ While the Commission has made a number of larger awards, the
substantial majority of all awards were $5 million or less. The
specific data regarding the Commission's whistleblower awards is
detailed in the ``Economic Analysis'' section below. This
information has informed our efforts to enhance the performance of
the program.
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    The Commission received over 150 substantively distinct comment
letters from approximately 100 commenters.\5\ In addition, the
Commission received three form letters from over 9,300 commenters.\6\
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    \5\ A number of commenters submitted multiple letters.
    \6\ The Commission did not investigate the circumstances under
which each of these approximately 9,300 commenters submitted a form
letter, including whether they submitted the letter of their own
accord, were solicited to submit the letter, or provided informed
consent to submit the letter.
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    The Commission has carefully considered the comments received. As a
threshold matter, we note that the Commission's discretion in
determining Award Amounts, and the manner in which the Commission
exercises that discretion, was a focus for many commenters. The
Commission recognizes that its articulation of the manner in which the
Commission exercises its authority to determine Award Amounts should be
clarified. Accordingly, the Commission is adopting a provision that
clarifies the Commission's broad discretion when applying the Award
Factors and determining the Award Amount, including the discretion to
consider and apply the Award Factors in percentage terms, dollar terms
or some combination of percentage terms and dollar terms when
determining the Award Amount. Aside from clarifying the Commission's
broad discretion, the Commission is adopting the rules substantially as
proposed with one exception. Specifically, the Commission is not
adopting proposed Rule 21F-6(d)(2), which would have provided a
specific process for the Commission to exercise its discretion to
review certain larger awards (exceeding $30 million to an individual
whistleblower) under certain circumstances.
    Although the Commission did not intend to create a new restriction
on, or affect the size of, Award Amounts, this proposed rule was
misperceived by some as a potential new restriction on Award Amounts.
The proposed rule was one component of the Commission's effort to
provide greater transparency, efficiency and certainty to the Award
Amount determination process. Based on the comments received, the
Commission's further analysis of the operation of the whistleblower
program to date and the more comprehensive clarifying amendments being
adopted, the Commission does not believe that proposed Rule 21F-6(d)(2)
is necessary. Further, as discussed below in Section II(E), based on
these same factors and with a focus on increased transparency,
efficiency and clarity, we are adding a specific provision to Rule 21F-
6 that will create a presumption that, when (1) the statutory maximum
authorized Award Amount is $5 million or less and (2) the negative
Award Factors are not present, the Award Amount will be set at the
statutory maximum, subject to the Commission's discretion to apply
certain exclusions. Aside from this presumption, the process for
recommendations by the Claims Review Staff (``CRS'') and the Office of
the Whistleblower is not changing. Awards of this type--where the
maximum statutory award of 30 percent is $5 million or less--make up
the vast majority (in number) of all whistleblower awards to date.
Consistent with the Commission's view that encouraging whistleblowers
to come forward is important, the Commission believes any potential
whistleblower should understand that where the aggregate maximum award
for the actions resulting from that whistleblower's original
information is likely to be $5 million or less (and where the negative
Award Factors are not present), Rule 21F-6(c) will generally result in
an Award Amount that is the statutory maximum.\7\ In addition to
providing potential whistleblowers with greater transparency and
certainty, this presumption should increase efficiency in the award
review process.
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    \7\ Of the total 74 awards by enforcement action as of July 31,
2020, including awards above and below $5 million, 31 awards were at
the statutory maximum and an additional 16 received close to the
maximum amount (in the top quarter of the range, i.e. 25% to 29%).
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    Below is a summary of the principal amendments to the Commission's
whistleblower rules that are being adopted:
     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 settlement agreement
entered into by the Commission outside of a judicial or administrative
proceeding to address violations of the securities laws;
     Consistent with the Commission's practice in award
determinations to date, clarifying the current definition of related
action to make clear that recovery from the Commission for the related
action is not available where the Commission determines that a separate
whistleblower award program more appropriately applies to the non-
Commission action;
     Providing a specific process presumptively setting Award
Amounts at the top end of the range when the statutory maximum award of
30 percent is $5 million or less and the negative Award Factors are not
present, subject to the discretion of the Commission to apply certain
exclusions;
     Clarifying the Commission's broad discretion when applying
the Award Factors in Rule 21F-6(a) and (b) and setting Award Amounts,
including the discretion to consider the Award Factors in percentage
terms, dollar terms or some combination thereof; and
     Revising the Commission's definition of ``whistleblower''
in light of

the Supreme Court's decision in Digital Realty Trust, Inc. v.
Somers,\8\ and making certain related clarifications to Rule 21F-2 to
address various other interpretive questions that have arisen in
connection with the Court's holding.
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    \8\ Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767 (2018).
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    In addition to the foregoing amendments, the Commission is adopting
several other amendments to our whistleblower rules that are intended
to clarify and enhance certain policies, practices, and procedures in
implementing the program. The Commission is revising Exchange Act Rule
21F-4(e) to clarify the definition of ``monetary sanctions.'' Further,
the Commission is revising Exchange Act Rule 21F-9 to provide the
agency with additional flexibility to modify the manner in which
individuals may submit Form TCR (Tip, Complaint or Referral) and to
provide a new mechanism for individuals who failed to timely comply
with the requirements of subparagraphs (a) and (b) of Rule 21F-9 to
obtain an award if the Commission can readily determine that they
clearly qualify for an award. Additionally, the Commission is adopting
revisions to Exchange Act Rule 21F-8 to provide the agency with
additional flexibility regarding the forms used in connection with the
whistleblower program,\9\ revisions to Exchange Act Rule 21F-12 to
clarify the list of materials that the Commission may rely upon in
making an award determination, and revisions to Rule 21F-13 to clarify
the materials that may be part of the administrative record for
purposes of judicial review.
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    \9\ 17 CFR 249.1800-1801.
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    Two further changes are designed to help increase the Commission's
efficiency in processing whistleblower award applications. The
Commission is adding a new paragraph (e) to Exchange Act Rule 21F-8 to
clarify the agency's ability to bar individuals from submitting
whistleblower award applications when they are found to have submitted
false information in violation of Exchange Act Section 21F(i) and Rule
8(c)(7) thereunder, as well as to afford the Commission the ability to
bar individuals who repeatedly make frivolous award claims in
Commission actions. The Commission is also adding new Exchange Act Rule
21F-18 to create a summary disposition procedure for certain types of
common denials, such as untimely award applications and applications
involving a tip that was not provided to the Commission in the form and
manner that the Commission's rules require. Under this new summary
disposition process, the Office of the Whistleblower may issue the
preliminary award denial in a limited class of relatively
straightforward matters; for all other award applications our current
award-processing procedures as specified in Rule 21F-10 will continue
to apply, which, among other things, means that the preliminary award
determination will be issued by the CRS and not the Office of the
Whistleblower.\10\
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    \10\ Exchange Act Rule 21F-10(d) and Rule 21F-11(d) authorize
the CRS to make a preliminary determination on an award application
for a covered action and related action, respectively. Further, in
accordance with Section 4A(b) of the Exchange Act, both rules now
clarify that Commission will be provided the opportunity to review
any preliminary determination before it is provided to a claimant.
See id. (providing that ``the Commission shall retain a
discretionary right to review'' actions taken ``[w]ith respect to
the delegation of any of [the Commission's] functions'').
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    Also, the Commission is adopting interpretive guidance to help
clarify the meaning of ``independent analysis'' as that term is defined
in Exchange Act Rule 21F-4(b)(3) and used in the definition of
``original information.'' \11\ Further, the Commission is specifying
the applicability dates for each rule amendment that we are adopting.
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    \11\ In addition to the amendments and other modifications
described above, we are adopting a technical correction to Exchange
Act Rule 21F-4(c)(2), to modify an erroneous internal cross-
reference, as well as several technical modifications to Exchange
Act Rules 21F-9, 10, 11, and 12, to accommodate certain of the
substantive and procedural changes described above.
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    Finally, the Commission received a number of comments in response
to the proposing release requesting additional transparency related to
the administration of the whistleblower program. The Commission has
considered these concerns and the following actions are in response to
them.\12\ The Commission is directing that the Office of the
Whistleblower will include in its annual reports to Congress (beginning
with the fiscal year 2020 report), in an aggregated manner, an overview
discussion of the factors that were present in the awards throughout
the year, including (to the extent practicable) a qualitative
discussion of how these factors affected the Commission's determination
of Award Amounts. The Office of the Whistleblower will continue to make
available on its web page, and will review and update as necessary on
not less than an annual basis, information regarding its approach to
processing whistleblower award claims, including the initial review and
prioritization of award claims.\13\
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    \12\ None of the measures discussed in this paragraph are
intended to create any enforceable rights. The measures discussed
have no legal force or effect; they do not alter or amend applicable
law, and create no new or additional obligations for any person.
    \13\ This information is available at https://www.sec.gov/files/OWB%20Approach%20to%20Processing%20Award%20Claims.pdf.
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II. Description of Final Rule Amendments

A. Rule 21F-4(d)--Definition of ``action''

1. Proposed Rule
    Section 21F of the Exchange Act requires the Commission to pay
whistleblower awards, with certain limitations and subject to certain
conditions, in relation to the ``successful enforcement'' of ``any
covered judicial or administrative action'' brought by the Commission
and certain ``related [judicial or administrative] actions'' of other
governmental entities, most notably DOJ.\14\ The Commission proposed to
add a new paragraph (3) to existing Rule 21F-4(d) (defining an
``action'') to provide that the term ``administrative action'' includes
a deferred prosecution agreement (``DPA'') or a non-prosecution
agreement (``NPA'') entered into by DOJ or a state attorney general in
a criminal case as well as 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; and further
that any money required to be paid in such actions will be deemed a
``monetary sanction'' within the meaning of Rule 21F-4(e). This
proposed addition to Rule 21F-4 sought to make awards available to
meritorious whistleblowers in cases where these alternative vehicles
are used to address violations of law. Its premise was the same as that
underlying current Rule 21F-4(d)(1): Our view that Congress did not
intend for meritorious whistleblowers to be denied awards simply
because of the procedural vehicle that the Commission (or another
governmental entity) has selected to resolve an enforcement matter.
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    \14\ 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. 78u-6(a)(1). A
``related action'' is a judicial or administrative action brought by
any of several governmental entities 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. 78u-6(a)(5). Awards range between 10 percent and 30 percent ``of
what has been collected of the monetary sanctions imposed'' in the
action. Id. 78u-6(b)(1)(A), 78u-6(b)(1)(B).

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2. Comments Received
    Most of the commenters who addressed proposed Rule 21F-4(d)(3)
supported it.\15\ Commenters generally agreed that the rule would
reduce uncertainty for potential whistleblowers and supported the
rationale stated in the proposed rule of assuring that the availability
of a whistleblower award not depend on the procedural vehicle that the
Government may use to resolve an enforcement matter.\16\
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    \15\ See letters from Anat R. Admati, Faculty Director, and
Graham Scott Steele, Director, Corporations and Society Initiative,
Stanford University Graduate School of Business (Sept. 18, 2018)
(``Admati and Steele Letter''); Americans for Financial Reform
Education Fund (Sept. 18, 2018) (``AFREF Letter''); Better Markets
(Sept. 18, 2018) (``Better Markets Letter''); Securities Industry
and Financial Markets Association (Sept. 18, 2018) (``SIFMA
Letter''); Cohen Milstein Sellers & Toll PLLC (Sept. 17, 2018)
(``Cohen Milstein Letter''); Richard Jansson (June 5, 2019)
(``Jansson Letter''); Eileen Morrell (Sept. 17, 2018) (``Morrell
Letter''); Harry Markopolos (Sept. 14, 2018) (``Markopolos
Letter''); Joe Fischer (Aug. 9, 2018) (``Fischer Letter''); Peter
Sivere dated July 13, 2018, Aug. 14, 2018, Aug. 16, 2018, Aug. 20,
2018 (two letters submitted on this date), Aug. 21, 2018, Aug. 27,
2018 (two letters submitted on this date), Sept. 2, 2018 (two
letters submitted on this date), Sept. 10, 2018, and Sept. 14, 2018
(collectively ``Sivere'' unless specified by date); Think Computer
Foundation (July 17, 2018) (``Think Computer Letter''); Taxpayers
Against Fraud (Sept. 18, 2018) (``TAF Letter''); G. Johnson (July
29, 2018) (``Johnson Letter''); Anonymous-88 (July 28, 2018),
(``Anonymous-88 Letter'').
    \16\ See Admati and Steele Letter; AFREF Letter; Cohen Milstein
Letter; Jansson Letter; Fischer Letter; TAF Letter; Johnson Letter.
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    One commenter emphasized the important role that DPAs and NPAs play
in fostering corporate compliance, cooperation, and remediation.\17\
This commenter offered that it would be contrary to the public interest
if, in encouraging vigorous compliance programs and extraordinary
cooperation in investigations, DOJ or the Commission decided not to
offer a company a DPA or an NPA for fear that, as a result, a
meritorious whistleblower would not receive an award. Similarly, this
commenter stated that it would be unfair to whistleblowers to be
deprived of an award simply because of ``positive conduct'' by the
entities about which whistleblowers provided information. For these
reasons, this commenter believed that permitting awards based on DPAs
and NPAs would fairly balance the important goals of rewarding
whistleblowers and encouraging companies to adopt effective compliance
programs and to cooperate fully during investigations in the hope of
obtaining a DPA or an NPA.
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    \17\ See SIFMA Letter.
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    Several commenters advocated that we pay awards in other
circumstances beyond the DPAs, NPAs, and settlement agreements
addressed in the proposed rule. One commenter urged that awards should
be available in cases where, even if the Commission does not bring a
covered action, the whistleblower's tip led DOJ to take action
(including cases where DOJ issues a declination letter).\18\ Another
commenter stated that we should pay awards in cases where we refer a
whistleblower complaint to a self-regulatory organization that
subsequently takes enforcement action relating to the complaint.\19\
One commenter asserted that an award should be available, irrespective
of the mechanism by which a matter is resolved, any time a
whistleblower's information assists the Commission or other
governmental entities in obtaining money.\20\ Another commenter opined
that ``any monetary payment to the SEC by an entity accused of
wrongdoing, after and because of the commencement of an SEC inquiry,
could be fairly classified as the result of an administrative action,
even if the matter does not proceed to be heard by an administrative
judge.'' \21\ Another commenter suggested that we pay awards in cases
with less than $1 million in monetary sanctions.\22\
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    \18\ See Sivere Letters dated Aug. 14 and 10, 2018.
    \19\ See letter from Anonymous-46 (Sept. 9, 2018).
    \20\ See TAF Letter.
    \21\ See Think Computer Letter.
    \22\ See Anonymous-88 Letter.
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    Two commenters did not support the proposal to pay whistleblower
awards on the basis of DPAs and NPAs entered into by criminal
authorities and Commission settlement agreements outside of the context
of a judicial or administrative proceeding.\23\ One of these commenters
stated that these types of agreements are not always filed in court or
subject to judicial oversight, which is an important ``check and
balance'' on the process.\24\ This commenter further stated that the
Commission does not have any particular expertise in the myriad state
laws that may come into play with respect to a settlement with a
particular state attorney general, and that the standards of
culpability under state law may differ considerably from those under
the federal securities laws. This commenter thus urged that paying
whistleblower awards on the basis of state DPAs and NPAs would lead to
``inconsistency in the eligibility standards under the Commission's
rules, and could create an imbalance among the states.''
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    \23\ See letter from U.S. Chamber of Commerce Center for Capital
Markets Competitiveness (Sept. 18, 2018) (``CCMC Letter''); letter
from Carrie Devorah (July 30, 2018) (``Devorah Letter'').
    \24\ See CCMC Letter.
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    This same commenter also stated that interpreting the term
``administrative action'' to include DPAs, NPAs, and Commission
settlement agreements outside of the context of a judicial or
administrative proceeding would be contrary to the plain meaning of the
term ``action,'' inconsistent with current usage of the term and
judicial precedent, and would lack any basis in the Dodd-Frank Act
itself. Instead, this commenter asserted, DPAs, NPAs, and Commission
settlement agreements encompassed by the proposed rule are not
``actions'' because they are contracts among regulators and third
parties, are entered into voluntarily by those third parties, and
cannot be unilaterally implemented by any individual regulator.
3. Final Rule
    After considering the comments, we have decided to adopt Rule 21F-
4(d)(3) with three changes. First, we have decided not to extend the
rule to DPAs and NPAs entered into by state attorneys general in
criminal cases. Second, we have added the modifier ``similar'' in
paragraph (d)(3)(ii), which describes the Commission settlement
agreements to which the rule will apply, in order to clarify the
features of these agreements that merit treating them as administrative
actions that impose monetary sanctions. Third, we have decided to apply
the rule to any DPA, NPA, or Commission settlement agreement that would
otherwise fall within the terms of the rule (provided that the
agreement was entered into after July 21, 2010, which is the date after
which the Dodd-Frank Wall Street Reform and Consumer Protection Act
took effect).\25\
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    \25\ We have effectuated this change by revising the language in
Rule 21F-10(b) and Rule 21F-11(b). Specifically, we have added
language to those rules so that the effective date of the amended
rules will serve as the trigger date that begins a 90-day period for
a whistleblower to submit an application for a DPA, NPA, or
Commission settlement agreement entered after July 21, 2010 but
prior to the effective date of the amended rules (although any award
application that as of the effective date of these rule amendments
is already pending for an DPA, NPA, or Commission settlement
agreement covered by this rule need not be resubmitted). We believe
that applying the revised definition of ``action'' to these prior
DPAs, NPAs, and Commission settlement agreements is consistent with
the purposes of the program to compensate meritorious whistleblowers
when their information also leads the authorities identified in the
statute to successfully resolve a related matter while, at the same
time, not creating an undue additional burden on the Office of the
Whistleblower in processing what we anticipate should be a
relatively small number of applications.
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    For the reasons described in the Proposing Release, we disagree
with the

commenter who asserted that we lack authority to interpret the term
``administrative action'' to also encompass DPAs and NPAs entered into
by DOJ and settlement agreements entered into by the Commission outside
of the context of a judicial or administrative proceeding. Rather, we
conclude that the term ``administrative action'' is sufficiently broad
to encompass these alternative vehicles for resolving investigations
into violations of law. In particular, as noted previously, Congress's
use of the term ``administrative action''--rather than administrative
proceeding--does not limit award consideration to cases where
investigations are resolved through formal adjudicatory administrative
proceedings, and our rulemaking authority under Section 21F and other
provisions of the Exchange Act therefore permits us to bring the
agreements described in the proposed rule within the definition of an
``administrative action.'' \26\
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    \26\ 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].''
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    Several circumstances inform our decision to treat DPAs and NPAs
entered into by DOJ as forms of ``administrative action'' for purposes
of Section 21F.\27\ First, DOJ itself recognizes the importance of DPAs
and NPAs in the hierarchy of tools that are available for addressing
criminal misconduct on the part of companies, their officers, and their
employees.\28\ DOJ has explained that DPAs and NPAs provide a ``middle
ground'' for resolution of a criminal matter in circumstances where a
declination is determined to be inappropriate, but a conviction of a
company may have significant collateral consequences for innocent third
parties.\29\ Second, DPAs and NPAs entered into by DOJ ordinarily
impose significant continuing obligations and conditions on subject
companies, coupled with clear and substantial consequences for
default--including the continuation or initiation of criminal
prosecution.\30\ Thus, on its face, the terms of a DPA or an NPA
reflect a substantive resolution of a criminal matter by DOJ--in other
words, an action--and not simply the closing of the investigation.
---------------------------------------------------------------------------

    \27\ We note that, because criminal charges are filed in
connection with a DPA (and later dismissed if all the terms of the
agreement are satisfied), a DPA in our view also satisfies the
alternative requirement of being a ``judicial action.''
    \28\ See US Dep't of Justice, Justice Manual, Sec.  9-28.200, 9-
28.1100 (2018) (available at https://www.justice.gov/jm/jm-9-28000-principles-federal-prosecution-business-organizations#9-28.200)
(``Justice Manual''); see also Memorandum from Brian A. Benczkowski,
Assistant Attorney General, re: Selection of Monitors in Criminal
Division Matters (Oct. 11, 2018) (available at https://www.justice.gov/criminal-fraud/file/1100366/download) (describing
DPAs, NPAs, and plea agreements as forms of corporate criminal
resolution).
    \29\ See Justice Manual Sec.  9-28.1100.
    \30\ For example, DPAs and NPAs entered by DOJ have stated terms
(usually two to three years). At the end of the term, if the company
has fulfilled all of its obligations--including making any required
monetary payments--the government will typically dismiss the charges
(in connection with DPAs) or not file charges (in the case of an
NPA). Typically, in both DPAs and NPAs the company is required to
admit responsibility for the conduct of its officers and employees
and to admit to a detailed statement of facts that supports the
government's case. The company is also typically required during the
term of the agreement to self-report any new evidence of violations.
The government, acting in its sole discretion, determines whether
the company has fulfilled all of its obligations under the
agreement. If the company fails to do so, then the government may
proceed with the prosecution (in the case of a DPA) or file charges
against the company (in the case of an NPA). Applicable statutes of
limitation are typically tolled during the term of the agreement,
and the statement of facts to which the company admitted is
admissible into evidence in any prosecution resulting from failure
to comply with the agreement.
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    For similar reasons, it is reasonable to view payments made under
DOJ DPAs and NPAs as ``monetary sanctions'' on which a whistleblower
award can be based. Section 21F(a)(4) defines ``monetary sanctions,''
in relevant part, as ``monies, including penalties, disgorgement, and
interest, ordered to be paid . . . as a result of such action or any
settlement of such action.'' \31\ The payments required under a DPA or
an NPA with DOJ are enforceable as a result of the company's admissions
of facts and liability, which would support the government's criminal
charges, coupled with the company's agreement to toll applicable
statutes of limitations in the event DOJ determines (in its sole
discretion) that prosecution is warranted because the company has
breached the agreement. Given these provisions, the practical effect of
a DPA or an NPA is to compel the subject company to make the monetary
payments to which it has agreed or face the possibility of criminal
prosecution on the basis of its previous admissions. Under these
circumstances, payments made under a DPA or an NPA with DOJ are
reasonably viewed as ``ordered'' within the meaning of Section 21F.\32\
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    \31\ 15 U.S.C. 78u-6(a)(4), 78u-6 (b)(1).
    \32\ 15 U.S.C. 78u-6(a)(4); see Order, Black's Law Dictionary
(10th ed. 2014) (defining an ``Order'' as ``A command, direction, or
instruction''); 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 11 (2009)
(characterizing payments under DPAs and NPAs as ``monetary penalties
imposed by DOJ . . . .''). We have also carefully considered whether
to include declination letters within the ambit of Rule 21F-4(d)(3),
and we have determined not to do so. We recognize that, in some
instances, recent declination letters recite considerations similar
in certain respects to provisions found in DPAs and NPAs, such as a
company's agreement to cooperate, make monetary payments, and
undertake remedial measures. See, e.g., Justice Manual Sec.  9-
47.120 (2018) (available at https://www.justice.gov/jm/jm-9-47000-foreign-corrupt-practices-act-1977) (FCPA Corporate Enforcement
Policy). However, declination letters as a class do not appear to
reflect many of the key attributes of DPAs and NPAs described above
(e.g., admissions and tolling of applicable statutes of limitations)
that have been important to our decision to make whistleblower
awards available for DPAs and NPAs.
---------------------------------------------------------------------------

    In the implementation of our whistleblower program to date we have
not had occasion to consider a DPA or an NPA entered into by a state
attorney general in a criminal case. We proposed to include such
agreements in Rule 21F-4(d)(3)(i) in the expectation that they should
generally be similar in nature to DPAs and NPAs entered into by DOJ.
However, we are persuaded by the concern expressed by one commenter
that including state DPAs and NPAs in the rule risks introducing
inconsistency in the eligibility standards for related action awards as
a result of the application of varying culpability and other standards
under state law.\33\ DPAs and NPAs are long-established in DOJ
practice, and their terms, conditions, and use have been subject to a
great deal of transparency.\34\ But the Commission has limited insight
into the practices of 50 state attorneys general (plus the District of
Columbia's) in entering into DPAs and NPAs, and we believe it would be
administratively infeasible to establish consistent award standards if
required, on a case-by-case basis, to determine whether any particular
state DPA or NPA includes terms sufficiently similar to those that
typify DOJ DPAs and NPAs such that the state instrument should also be
deemed an ``administrative action'' that imposes ``monetary
sanctions.'' For this reason, new Rule 21F-4(d)(3) does not extend to
DPAs or NPAs entered into by state attorneys general in criminal cases.
---------------------------------------------------------------------------

    \33\ See CCMC Letter.
    \34\ See notes 28 to 30, supra.
---------------------------------------------------------------------------

    The rule we are adopting today includes settlement agreements
similar to DOJ DPAs and NPAs entered into by the Commission outside of
the context of a judicial or administrative proceeding. In our
practice, these agreements have included key provisions typically
analogous to those

found in DOJ DPAs and NPAs that warrant also treating them as
``administrative actions,'' with the payments required under these
agreements constituting ``monetary sanctions.'' Among the provisions
that we deem important to our analysis are: (1) Substantial continuing
obligations on the part of the respondent (e.g., detailed and specific
cooperation requirements and a requirement that any successors to the
respondent be bound by the agreement); (2) specificity as to conduct
that constitutes a violation of the agreement (e.g., further violations
of the federal securities laws, provision of false information, and
failure to make payments on the schedule and in the amounts due); (3)
tolling of applicable statutes of limitations; and (4) clear and
substantial consequences for default, including the respondent's
agreement not to contest or challenge the admissibility in a future
enforcement action of factual statements supporting the Commission's
case that are recited as part of the agreement, as well as the
respondent's consent to the use of any documents, testimony, or other
evidence previously provided by it in a future enforcement action
resulting from its violations.
    However, extending awards to the other circumstances suggested by
some of the commenters would exceed our statutory authority. As Section
21F defines a ``covered judicial or administrative action'' to require
``monetary sanctions exceeding $1 million,'' \35\ we are unable to pay
awards in Commission actions where we obtain any smaller amount of
monetary sanctions. For similar reasons, the suggestion of some
commenters that an award be available any time a whistleblower's
information helps secure a payment of money to the Commission sweeps
too broadly; our ability to pay a whistleblower award turns in each
case on whether a payment can reasonably be viewed as a ``monetary
sanction,'' defined in relevant part as ``monies, including penalties,
disgorgement, and interest, ordered to be paid . . . as a result of
such action or any settlement of such action.'' \36\ In addition,
because a ``related action'' is defined in the statute to require that
the same original information provided by the whistleblower also led to
the successful enforcement of the Commission action,\37\ we cannot
grant an award for an action by DOJ or a self-regulatory organization
absent a predicate Commission covered action as to which the
whistleblower also merits an award.\38\
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    \35\ 15 U.S.C. 78u-6(a)(1).
    \36\ 15 U.S.C. 78u-6(a)(4), 78u-6 (b)(1). As the Proposing
Release explained, in our view, a payment of money is reasonably
treated as ``ordered'' when the governmental entity 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. As is further discussed
above, the requisite indicia of compulsion are present in the
agreements described in proposed Rule 21F-4(d)(3) because of the
significant consequences that may result from a breach of the
payment obligation under the agreement.
    \37\ 15 U.S.C. 78u-6(a)(5).
    \38\ See In the Matter of the Claim for an Award in Connection
with a Notice of Covered Action, Exchange Act Release No. 34-84506,
2018 WL 5619386 n.5 (Oct, 30, 2018) (``The Commission may make an
award to a whistleblower in connection with a related action only if
the Commission has determined that the whistleblower is entitled to
an award for a Commission covered action.'') (emphasis in original).
As with other related actions, we do not believe it is necessary to
require the Office of the Whistleblower to post notices of DPAs or
NPAs entered into by DOJ. In the great majority of cases, claimants
should be able to learn about DPAs and NPAs through public
announcements. Some claimants also may know of a DPA or NPA as a
result of having communicated with the authority bringing the
action. In the rare instance where a claimant can demonstrate that
compliance with Rule 21F-11(b) was not practicable because a DPA or
an NPA was non-public and the claimant did not obtain actual
knowledge of the agreement prior to the deadline for filing an award
claim, 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 Rule 21F-8(a). Commission settlement
agreements subject to the rule are publicly announced on our
website.
---------------------------------------------------------------------------

B. Rule 21F-4(e)--Definition of ``monetary sanctions''

1. Proposed Rule
    Rule 21F-4(e) currently defines the term ``monetary sanctions'' to
mean ``any money, including penalties, disgorgement, and interest,
ordered to be paid and 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 a Commission action or a related
action.'' This definition substantially tracks the definition set forth
in Section 21F of the Exchange Act.\39\ The Commission proposed to
amend 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 by the
Commission in an administrative proceeding or a court of competent
jurisdiction in a judicial proceeding 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.
---------------------------------------------------------------------------

    \39\ According to section 21F(a)(4), the term ``monetary
sanctions,'' when used with respect to any judicial or
administrative action, means any monies, including penalties,
disgorgement, and interest, ordered to be paid; and 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. 15 U.S.C.
78u-6(a)(4).
---------------------------------------------------------------------------

    Paragraph (e)(1)(ii) of the proposed amended rule was intended to
clarify--consistent with our existing practice--that a required payment
not expressly designated as disgorgement, penalty, or interest, must be
in the nature of relief for the violations charged in order to be
considered a ``monetary sanction'' for purposes of the whistleblower
award program. Thus, we explained, if, for example, 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, the amended rule would treat
that second order as a monetary sanction under paragraph (e)(1)(ii) of
the proposed rule. However, if the receiver requests approval to use
frozen funds to pay creditors, taxes to a governmental entity,
attorney's fees, or other costs of the receivership, such payments
would not constitute monetary sanctions under paragraph (e)(1)(ii)
because they are not in the nature of relief for the violations
charged.
2. Comments Received
    Some commenters supported the proposed amendment to the definition
of ``monetary sanctions.'' \40\ However, one of these commenters
expressed concern that if the Commission were to obtain a court order
for defendants to pay ``$1 million in restitution payments and $1
million in punitive damages,'' the order for punitive damages might not
be viewed ``as relief'' for the securities violations.\41\ This
commenter recommended use of ``broader terminology, without
substantially changing the way [the Commission] calculates qualifying
payments from the way it does now.''
---------------------------------------------------------------------------

    \40\ See CCMC Letter; Think Computer Letter; letter from
Anonymous-135 (Oct. 22, 2019).
    \41\ See Think Computer Letter.
---------------------------------------------------------------------------

    Several other commenters objected to the proposed amendment.\42\
Some

commenters argued that the proposed changes would introduce ambiguity
or confusion into the rule.\43\ In particular, one of these commenters
observed that our use of the word ``required'' in the proposed rule
would lead to ``confusion and uncertainty'' and suggested that we
revert to the statutory term ``ordered.'' \44\
---------------------------------------------------------------------------

    \42\ See TAF Letter; letter from Whistleblower Law
Collaborative, LLC (Sept. 18, 2018) (``Whistleblower Law
Collaborative Letter''); Markopolos Letter; letter from Anonymous-12
(Sept. 18, 2018) (``Anonymous-12 Letter''); and letter from Mac
Vineyard (Sept. 29, 2018) (``Vineyard Letter'').
    \43\ See TAF Letter; Whistleblower Law Collaborative Letter;
Markopolos Letter.
    \44\ See Whistleblower Law Collaborative Letter.
---------------------------------------------------------------------------

    The principal concern of objectors appeared to be that the
definition of ``monetary sanctions'' should be flexible enough to
support whistleblower awards in a variety of circumstances that did not
appear to be covered by the proposed amendment. For example, several
commenters urged that the definition of ``monetary sanctions'' should
permit payments to a whistleblower based on recoveries by a bankruptcy
trustee to the same degree as a receiver appointed in a Commission
enforcement action.\45\ One of these commenters asserted: ``While Ponzi
cases often go into receivership, public company accounting frauds . .
. often end up in federal bankruptcy court. It is important for
corporate whistleblowers to know they will be rewarded for turning in
their company even if exposing the fraud ends up bankrupting the
company.'' \46\ Another of these commenters similarly supported awards
in connection with bankruptcy proceedings, making the point that
``[t]he primary purpose of the two proceedings is essentially the same:
To place control of the company in the hands of a disinterested party
in order to properly run, reorganize or liquidate the business and
protect investors and creditors.'' \47\
---------------------------------------------------------------------------

    \45\ See TAF Letter; Whistleblower Law Collaborative Letter;
Markopolos Letter; Anonymous-12 Letter.
    \46\ See Markopolos Letter.
    \47\ See TAF Letter.
---------------------------------------------------------------------------

    In addition to including bankruptcy cases, one commenter argued
that the definition of ``monetary sanctions'' should be broad enough to
permit awards in other forms of proceedings ``where sanctions or
settlements result because of the Commission's work and/or the
whistleblower's tip . . . .'' \48\ This commenter urged that ``the
definition of `monetary sanctions' should be sufficiently flexible . .
. to allow the Commission to consider sanctions obtained in any
proceeding which results from the Commission's action (or a `related
action'), where there is a strong nexus (e.g., a common nucleus of
operating facts) between the matter in question and the whistleblower's
tip and the ensuing investigation, and results in monetary relief for
injured parties such as investors. In other words, the Commission's
definition of `monetary sanction' should be sufficiently flexible to
accurately reflect what the whistleblower's tip accomplished in the
form of relief to defrauded investors.'' \49\
---------------------------------------------------------------------------

    \48\ See Whistleblower Law Collaborative Letter.
    \49\ Id.
---------------------------------------------------------------------------

    This same commenter also asserted that there are many cases where
the cost of recovery and administration of claims ``cannibalizes'' a
substantial portion of the funds available for distribution to injured
investors.\50\ The commenter gave as an example a $100 million fraud
case where a receiver successfully recovers $10 million but bills $7.5
million in professional expenses and fees. In such a case, the
commenter opined, it would seem unduly harsh to calculate the award on
$2.5 million; an award should be based on the gross amount recovered,
and not reduced because of ``billings from attorneys, accountants, or
other professionals.'' \51\
---------------------------------------------------------------------------

    \50\ Id.
    \51\ Id.
---------------------------------------------------------------------------

3. Final Rule
    After considering the comments, we have decided to adopt Rule 21F-
4(e) substantially as proposed. However, in response to concerns raised
by some commenters about potential confusion, and to more closely track
the statutory language, we have determined to use the word ``ordered,''
rather than ``required,'' so that Rule 21F-4(e) as adopted, in relevant
part, now reads, ``(e) Monetary sanctions means: (1) An order to pay
money that results from a Commission action or related action and which
is either: (i) Expressly designated as penalty, disgorgement, or
interest; or (ii) Otherwise ordered as relief for the violations that
are the subject of the covered action or related action . . . .'' \52\
---------------------------------------------------------------------------

    \52\ The proposed rule substituted the term ``required'' to
reflect the recognition in proposed Rule 21F-4(d)(3) that monetary
obligations under DPAs, NPAs, and Commission settlement agreements
outside of the context of a judicial or administrative proceeding
are not reflected in formal adjudicative orders. However, we have
now included in the discussion of Rule 21F-4(d)(3), as adopted,
additional explanation of these agreements and why the payments
under them are reasonably viewed as ``ordered'' for purposes of the
definition of monetary sanctions, rendering it unnecessary to
substitute ``required'' for ``ordered'' in Rule 21F-4(e). We have
also revised paragraph (e)(1)(i) to refer to ``a penalty,
disgorgement, or interest'' rather than ``disgorgement, a penalty,
or interest thereon,'' as was used in the proposed rule, in order to
more closely track the statutory language and eliminate any
potential confusion regarding this phraseology.
---------------------------------------------------------------------------

    With respect to comments relating to bankruptcy proceedings, our
statutory authority does not extend to paying whistleblower awards for
recoveries in bankruptcy proceedings or other proceedings that may in
some way ``result from'' the Commission's enforcement action and the
activities of the whistleblower. Under Section 21F, we are authorized
to pay whistleblower awards only on the basis of monetary sanctions
that are imposed ``in'' a covered judicial or administrative action or
related action.\53\ A ``covered judicial or administrative action'' is
an action ``brought by the Commission under the securities laws that
results in monetary sanctions exceeding $1 million,'' \54\ while a
``related action'' must be brought by one of the enforcement and
regulatory authorities specified in the statute.\55\ Bankruptcy
proceedings are not brought by either the Commission acting under the
securities laws or by one of the designated related-action authorities,
and orders to pay money that result from bankruptcy proceedings are not
imposed ``in'' Commission covered actions or related actions. The same
is true of monetary payments that may result from other forms of
proceedings that are not Commission covered actions or related
actions.\56\
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 78u-6(b)(1)(A) through (B).
    \54\ 15 U.S.C. 78u-6(a)(1).
    \55\ 15 U.S.C. 78u-6(a)(5). These authorities are the Attorney
General of the United States, an appropriate regulatory authority (a
term which is further defined in Exchange Act Rule 21F-4(g)), a
self-regulatory organization, or a State Attorney General in
connection with a criminal investigation. 15 U.S.C. 78u-
6(h)(2)(D)(i).
    \56\ With respect to the commenter who sought to ensure that
punitive damages would be covered by the rule, we note that punitive
damages are not obtainable in Commission covered actions. However,
the Commission may order (in an administrative proceeding) or seek
(in a federal court action) civil money penalties, which are covered
by the statute and the rule and therefore are a basis for posting a
Notice of Covered Action and paying a whistleblower award.
---------------------------------------------------------------------------

    Defining ``monetary sanctions'' to include payments that are
ordered ``as relief for the violations that are the subject of the . .
. action'' is most consistent with our statutory authority. As noted,
Section 21F(a)(4) of the Exchange Act defines ``monetary sanctions,''
in relevant part, as ``any monies, including penalties, disgorgement,
and interest, ordered to be paid; . . . as a result of [any judicial or
administrative] action or the settlement of such action.'' \57\ Under
accepted principles of statutory construction, the words that follow
``including''--penalties, disgorgement, and interest--although not an
exhaustive list, are illustrative of the

general principle to be applied.\58\ Accordingly, as the D.C. Circuit
has held, we think it is reasonable to ``expand on the remedies
explicitly included in the statute only with remedies similar in nature
to those enumerated.'' \59\ Because ``penalties, disgorgement, and
interest'' describe forms of monetary relief for the violations that
are the subject of an action, this provision reflects a congressional
expectation that we would pay whistleblower awards only with respect to
other orders to pay money that also constitute relief for the
violations. For example, although restitution is not one of the
sanctions set forth after the word ``including,'' restitution ordered
in a criminal proceeding is a form of relief for the violations that
are the subject of the action, and therefore is a ``monetary sanction''
that will support a related-action whistleblower award.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78u-6(a)(4).
    \58\ See Samantar v. Yousuf, 560 U.S. 305, 317 (2010); United
States v. Philip Morris USA, Inc., 396 F.3d 1190, 1200 (D.C. Cir.
2004).
    \59\ United States v. Philip Morris USA, Inc., 396 F.3d at 1200.
---------------------------------------------------------------------------

    For these reasons, we are not persuaded by the commenter who urged
that we define ``monetary sanctions'' to include a court's orders to
pay a receiver's fees or billings from attorneys, accountants, or other
professionals. Treating a court order to pay such fees as a ``monetary
sanction'' would not comport with the statutory language (as just
discussed).\60\
---------------------------------------------------------------------------

    \60\ As more fully discussed in the Proposing Release, we also
view the requirement in Section 21F(a)(1), 15 U.S.C. 78u-6(a)(1),
that a Commission action must ``result[ ] in monetary sanctions
exceeding $1,000,000'' (emphasis added), and the requirement in
Section 21F(a)(4), 15 U.S.C. 78u-6(a)(4), that a monetary sanction
must be a ``result of'' an action, as supporting our interpretation.
The phrase ``results in'' suggests to us that Congress was
addressing those monetary obligations that the action secures ``as
relief'' for the violations that are the subject of the action.
---------------------------------------------------------------------------

    Additionally, as the Proposing Release stated, this conclusion is
buttressed by Congress's use of the phrase ``monetary sanctions imposed
in the action'' in further describing the sanctions that would support
a whistleblower award.\61\ While in normal parlance a person might say
that disgorgement or civil penalties were ``imposed'' as a result of a
securities-law violation, we do not believe that one would typically
say that a court order approving fees and expenses of a court-appointed
receiver or other professionals hired by the receiver ``impos[ed]'' a
monetary sanction. Rather, this language indicates that the
congressional focus was on monetary obligations that are in the nature
of relief for the violations that are the subject of the action.
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 78u-6(b)(1)(A) through (B) (emphasis added).
---------------------------------------------------------------------------

    Finally, the Proposing Release stated generally that a court order
approving a receiver's plan to distribute money to injured investors
would be treated as a monetary sanction. We further clarify here, in
line with Commission practice, the types of distributions to injured
investors that will be treated as monetary sanctions. Although the
Commission may seek the appointment of a receiver in an enforcement
action filed in federal court, a receiver does not work for the
Commission, represent the interests of the Commission, or even
represent the interests of investors. Rather, a receiver is an officer
of the court, appointed by the court to take custody of assets over
which the court asserts jurisdiction (the receivership estate), for the
benefit of all persons whom the court may later adjudge to have rights
in the property.\62\ Depending on the violations charged and the
attendant facts and circumstances of the case, a court order directing
a receiver appointed in a Commission enforcement action to make a
distribution to investors may reflect recompense to the investors of
money lost as a result of the securities violations, or it instead may
simply reflect a return of assets that the receiver has obtained in his
custodial capacity, which is greater than the amount of money lost as a
result of the violations.
---------------------------------------------------------------------------

    \62\ See Atlantic Trust Co. v. Chapman, 208 U.S. 360, 370-71
(1908). Indeed, viewing a court order to pay a receiver's fees as a
``monetary sanction'' cannot be squared with the legal status of a
receiver as an officer of the court and the receiver's fees as costs
incurred by the court in administering the receivership property.
Ralph Ewing Clark, A Treatise on the Law and Practice of Receivers
Sec. Sec.  11, 637 (3d ed. 1992).
---------------------------------------------------------------------------

    For example, in a simple hypothetical case where an investment
adviser is charged with violating the securities laws for
misappropriating $1 million from a fund that holds $100 million,
investors lost $1 million as a result of the violations. If, for some
reason, a receiver were appointed in the case and the receiver were
ordered to unwind the funds and return all fund assets to the
investors, any amounts paid in excess of the $1 million lost as a
result of the violations would be a return of custodial assets held by
the receiver, and not relief for the violations.
    Under Rule 21F-4(e) as amended, we first look to whether an order
to pay money is expressly designated as penalty, disgorgement, or
interest. If so, then that order establishes the amount of monetary
sanctions in the case as to that defendant. Absent an order to pay
money expressly designated as a penalty, disgorgement, or interest, we
will consider whether an order to pay money to investors is in the
nature of relief for the violations that were the subject of the
action. In the context of a Commission covered action where a receiver
is appointed and the court orders a distribution of money in the
receivership estate to investors, we will begin our assessment of the
amount of the applicable monetary sanctions with an amount that does
not exceed the higher of (i) the ill-gotten gains received by the
defendants over which the receiver has been appointed, or (ii)
investors' losses as a result of the violations. In determining the
investor losses, we will consider losses that flowed from the violative
conduct alleged in the covered action, to the extent such losses
approximate the monetary sanctions the Commission could obtain in the
covered action. In addition, we will not treat as a ``monetary
sanction'' amounts that merely reflect a return of custodial assets to
investors and not relief for the violations.\63\
---------------------------------------------------------------------------

    \63\ Under Section 21F(b)(1), the Award Amount must be between
10 percent and 30 percent ``of what has been collected'' of the
monetary sanctions imposed in a Commission covered action or a
related action. When, pursuant to the analysis above, a receiver's
distribution to investors is the basis for the amount of a monetary
sanction under paragraph (e)(1)(ii) of Rule 21F-4, that amount is
deemed ``collected'' at the time the court orders the distribution.
However, in a case involving a receiver in which the court has
ordered penalties, disgorgement, or interest under paragraph
(e)(1)(i), as noted above, that order--not the amounts distributed
by the receiver--establishes the amount of the monetary sanction as
to that defendant. In this circumstance, payment of an award based
on the amount ``collected'' turns on the Commission's ability to
conclude that some portion of funds or other assets over which the
receiver assumes control should be treated as satisfying the court's
monetary judgment in favor of the Commission. In applying this
principle we have and will continue to generally expect--absent
particular facts and circumstances supporting a different approach--
to look to the amount distributed to investors as the amount
collected for award purposes. If the amount distributed to investors
includes monies paid to the receiver by other defendants to satisfy
their own respective monetary orders, then we would generally expect
to net these monies. For example, if two defendants are each
separately ordered to pay disgorgement of $1 million, each
contribute $500,000 to the receivership estate, and the receiver
distributes $1 million to investors, then only $500,000 is
``collected'' as to each defendant's disgorgement order.
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C. Amendments to Exchange Act Rule 21F-3(b) Defining ``related action''

1. Proposed Amendments
    Under Exchange Act Section 21F(b), 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 Rule 21F-3(b)
implements this statutory directive.
    Rule 21F-3(b)(1) defines ``related action.'' The Commission
proposed to amend the existing definition to clarify that a
whistleblower would qualify for a potential related-action award if
either (i) the whistleblower provided to the other governmental entity
that pursued the purported related action the same information that the
whistleblower provided to the Commission and the provision of that
information led to the successful enforcement of the Commission covered
action or (ii) the Commission itself provided that information to the
other governmental entity and the provision of that information led to
the successful enforcement of the related action.\64\
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    \64\ We also indicated that we are making a technical
modification to the definition in Rule 21F-3(b)(1) to conform the
existing rule language with the statutory definition as provided in
Section 21F(a)(6) of the Exchange Act. This technical amendment
clarifies that with respect to any related action the action must be
``based on'' the same original information that the whistleblower
voluntarily provided to the Commission and that ``led to the
Commission to obtain monetary sanctions totaling more than
$1,000,000.'' As currently drafted, the rule reads as though this
requirement applies only to criminal actions brought by a state
attorney general.
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    Additionally, the Commission proposed a new paragraph (4) to Rule
21F-3(b) that would apply to situations where the Commission's
whistleblower program and one or more separate whistleblower award
programs might potentially apply to the same action. The proposed new
paragraph (4)--the ``multiple-recovery rule''--is based on the
Commission's experience and past practice and is intended to clarify
various issues relating to the application of the Commission's
whistleblower program when another award program would potentially
apply to the same action. It 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.'' Proposed paragraph
(4) would also provide that even ``[i]f the Commission does determine
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 governmental entity 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 governmental entity
responsible for administering the other whistleblower award program
resolved against you as part of the award denial.'' Lastly, proposed
paragraph (4) provided that, if the Commission makes an award before an
award determination is finalized by the governmental entity responsible
for administering the other award program, 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
program.
    Beyond these proposed amendments, the Commission also stated that
as part of this rulemaking it is considering whether to repeal Exchange
Act Rule 21F-3(b)(3)--which provides a somewhat different mechanism to
determine that recovery from the Commission is not available where the
whistleblower program administered by the Commodity Futures Trading
Commission (CFTC) is involved--so that the provisions of proposed
paragraph (4) would apply to all instances where a potential multiple
recovery might occur.
2. Comments Received
    With respect to the proposed revision of paragraph (1) of Rule 21F-
3(b), the Commission received two comments.\65\ One of the comment
letters opposed the proposal and the other raised concerns.\66\
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    \65\ See letters from Kohn, Kohn & Colapinto, LLP (July 24,
2018) (``Kohn, Kohn & Colapinto July 24 Letter'') and Sen. Charles
E. Grassley (Sept. 18, 2018) (``Sen. Grassley Letter'').
    \66\ Neither of these comments expressed any concern with the
technical revision to conform paragraph (1) to the statutory
definition of related action in Section 21F(a) of the Exchange Act.
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    Both commenters expressed the view that the Commission cannot
require whistleblowers to provide directly any information to any
federal or state agency (or other governmental entity that can bring a
related action) that does not have rules protecting whistleblower
confidentiality and allowing anonymous whistleblower submissions. The
commenter who opposed the proposed change also asserted that the
confidentiality concern is not ameliorated by the alternative that
allows the Commission to share the whistleblower's information directly
with the other governmental entity because the whistleblower may never
be informed that the information has been provided.\67\ Finally, the
opposing commenter asserted that the revised language in proposed
paragraph (1) would not cover situations where one sister agency (e.g.,
DOJ) provided a whistleblower's information to another sister agency
(e.g., the Federal Deposit Insurance Corporation), but neither the
Commission nor the whistleblower had directly provided the information
to the second sister agency.\68\
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    \67\ See Kohn, Kohn & Colapinto July 24 Letter.
    \68\ Id.
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    With respect to the proposed multiple-recovery rule, two commenters
supported the proposal. One commenter stated that the proposal would
improve the Commission's stewardship of the disbursement of public
funds,\69\ while another agreed with the Commission's preliminary view
that a whistleblower should neither have multiple recoveries on the
same action nor multiple bites at the adjudicatory apple.\70\ One
commenter recommended that the Commission go further by categorically
excluding from the related-action definition any judicial or
administrative action that may be subject to an alternative award
program.\71\
---------------------------------------------------------------------------

    \69\ See CCMC Letter.
    \70\ See Center for Workplace Compliance Letter.
    \71\ See CCMC Letter.
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    Several commenters opposed the proposed multiple-recovery rule. The
principal concerns raised were that: (i) The proposed amendment would
increase the uncertainty and delay concerning any potential award and
that this might discourage a whistleblower from coming forward; \72\
(ii) the proposal is unnecessary because the Commission has never
encountered a situation where a second whistleblower program
potentially applied; \73\ (iii) the proposal places an unreasonable
burden on potential whistleblowers and could undermine the
confidentiality protections in Section 21F(h)(2) by forcing
whistleblowers to submit their information to other entities that may
have a competing whistleblower program; \74\ (iv) the Commission should
not read Section 21F's language to impose a cross-agency cumulative 30
percent award ceiling; \75\ and (v) the proposal ignores the fact that
other whistleblower programs may have different award criteria and
eligibility

considerations, including significantly reduced payout potentials.\76\
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    \72\ See TAF Letter; Cornell Securities Law Clinic (Sept. 17,
2018) (``Cornell Law Clinic Letter''); Anonymous-9 (Sept. 18, 2018)
(``Anonymous-9 Letter''); Think Computer Letter; AFREF Letter.
    \73\ See TAF Letter.
    \74\ See Sen. Grassley Letter; Anonymous-9 Letter.
    \75\ See AFREF Letter; Think Computer Letter.
    \76\ See Anonymous-9 Letter.
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    Some commenters offered alternatives to the proposed multiple-
recovery rule. One alternative would be to allow a whistleblower to
decide whether to receive an award from the Commission's whistleblower
award program or the other award program after the whistleblower has
been informed by both programs about their respective award
determinations.\77\ A second alternative would authorize a Commission
award on an action as a supplement to the award authorized by the other
whistleblower program up to an aggregate maximum based on the
application of the statutory maximum percentage under the Commission's
program (i.e., 30 percent) to a combination of the multiple
recoveries.\78\
---------------------------------------------------------------------------

    \77\ See AFREF Letter; Think Computer Letter.
    \78\ See AFREF Letter.
---------------------------------------------------------------------------

    Finally, two commenters supported the existing paragraph (3) of
Rule 21F-3(b) and its framework for preventing multiple-recoveries or
issue re-adjudication where both the Commission's and the CFTC's
whistleblower programs might apply. In supporting the framework of
paragraph (3), one of the commenters observed that the SEC and the CFTC
regulate very similar and at times overlapping markets and the
commenter believed that this counseled for retention of the existing
paragraph (3).\79\ Another commenter suggested that the existing
framework of paragraph (3) should actually be expanded to cover all
situations where the Commission might encounter a potentially
applicable alternative whistleblower program that relates to another
governmental entity's action.\80\
---------------------------------------------------------------------------

    \79\ See Think Computer Letter.
    \80\ See Anonymous-9 Letter.
---------------------------------------------------------------------------

3. Final Rule
    After reviewing the comments, we are (i) adopting revised paragraph
(1) of Rule 21F-3(b) as proposed with one further clarification; (ii)
removing existing paragraph (3) concerning potential multiple recovery
under the SEC and CFTC whistleblower programs for the same action; and
(iii) adopting proposed paragraph (4) as new paragraph (3) of Rule 21F-
3(b).\81\
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    \81\ We are making one further clarifying change. The proposed
rule text stated that in assessing whether an action brought by
another entity qualifies as a related action under the Commission's
whistleblower program, the Commission will consider the ``unique
facts and circumstances'' of the case. We are concerned that the use
of the word ``unique'' may suggest that something highly unusual or
special about the case will be relevant to the analysis, but that
was not the intention of the proposal. Accordingly, to clarify that
each case will be assessed on its own particular facts and
circumstances, the final rule text does not include the word
``unique.''
---------------------------------------------------------------------------

    Revised paragraph (1) of Rule 21F-3(b) provides that a related
action is: (i) A judicial or administrative action yielding monetary
sanctions; (ii) that is brought by one of the entities listed in Rule
21F-3(b)(1)(i)-(iv); and (iii) that is based upon information that
either the whistleblower provided directly to the governmental entity
or the Commission itself passed along to the other governmental entity
pursuant to the Commission's procedures for sharing information, and
which is 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 million.\82\ The
modification that we are making to the proposed rule text would include
a clarification that a related action must yield monetary sanctions
because the statute requires that any Award Amount must be tied
directly to the monetary sanctions imposed.\83\
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    \82\ Experience with the program has shown that other types of
actions, including actions under antitrust law, are not likely to
qualify as related actions where they do not have a clear, explicit,
and direct connection to the conduct governed by the securities law.
    \83\ 15 U.S.C. 78u-6(b)(1).
---------------------------------------------------------------------------

    For the reasons stated in the Proposing Release, it is appropriate
that for an action to qualify as a potential related action a
whistleblower must have submitted information directly to the
governmental entity that brought the action, or the Commission must
have provided the whistleblower's information directly to the
governmental entity. This requirement is already provided for in Rule
21F-11(c), and it reflects our interpretation of the requirement in
Section 21F(a)(5) of the Exchange Act that a related action must be
``based upon the original information provided by a whistleblower'' to
the Commission. In addition, our experience with the whistleblower
program to date leads us to conclude that these requirements regarding
the provision of information are appropriate and beneficial to allow us
to work with the governmental entity that has brought the purported
related action to assess the role a whistleblower's information
actually played in contributing to the success of the action. These two
alternative requirements have allowed our staff to work with the other
governmental entity in a way that is not unduly burdensome to our staff
or the other governmental entity to reasonably trace the role of the
information from the other governmental entity's receipt of it
(including whether it was duplicative of information the other
governmental entity already had and what role the information played in
advancing the governmental entity's investigation) through to the
success of the purported related action.
    We acknowledge the commenters' concerns that a whistleblower may
decline to provide information directly to a governmental entity that
lacks any confidentiality or anonymity protections because of a
potential heightened risk of disclosure. But thus far in our experience
administering the program, we have routinely observed that many
whistleblowers have been directly sharing information with entities
that can bring potential related actions. That said, to the extent some
subset of whistleblowers may have concerns about submitting their
potential original information to one of these entities, they can take
steps to remove any information that may disclose their identity before
providing it to the other governmental entity and, when submitting
their tip to that governmental entity, explain that information that
may identify the whistleblower has been excluded but that it can
potentially be obtained by the governmental entity from the
Commission.\84\ In this way, if the authority seeks and obtains
information from the Commission that might reasonably disclose the
whistleblower's identity, the other governmental entity will be subject
to the same heightened confidentiality obligations that Section
21F(h)(2) imposes on the Commission.\85\
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    \84\ If the whistleblower includes the Commission's TCR number
in his or her submission to the other governmental entity, this
should make it possible for the Commission to locate the information
and provide it to the other governmental entity subject to the
procedures and requirements for sharing such information. Further,
if the other governmental entity for some reason is unwilling to
accept an anonymous whistleblower tip submitted by an individual,
the whistleblower could request, in writing, that the Commission
staff provide the tip to the governmental entity and Commission
staff will assess whether doing so would be appropriate given the
nature of the tip, among other relevant considerations. Generally,
before providing a whistleblower's tip to another governmental
entity, the other authority must agree to maintain all whistleblower
identifying information as confidential in accordance with the
requirements established under Section 21F(h)(2)(A). In determining
whether to provide information to another governmental entity or
authority based on a whistleblower's request, we anticipate that the
staff will consider the same mix of factors that the staff already
looks to in deciding whether to share information.
    \85\ See 15 U.S.C. 78u-6(h)(2)(D)(ii)(I) (directing that DOJ,
various federal regulatory agencies, self-regulatory organizations,
state attorney generals and regulatory authorities, and the Public
Company Accounting Oversight Board ``shall maintain'' any
whistleblower identifying information provided to them from the
Commission ``as confidential in accordance with'' the same
heightened confidentiality obligations that Section 21F(h)(2)(A) of
the Exchange Act imposes on the Commission).

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

    While we appreciate that this may take additional effort by a
whistleblower who is seeking to ensure that his or her information is
received by the other governmental entity without losing the statutory
confidentiality guarantees, we do not believe that this should impose
an undue burden. Moreover, in the context of anonymous submissions made
to the Commission, a whistleblower could similarly provide that same
submission to one of the related-action entities even if the
governmental entity does not expressly provide for anonymous
disclosures. Under the Commission's rules, an anonymous whistleblower
seeking to be eligible for an award must have an attorney, so the
attorney should be well positioned to make the anonymous submission to
the other governmental entity and to serve as the whistleblower's point
of contact in dealing with that governmental entity.
    We also determined not to revise the new rule to permit awards when
another governmental entity that can pursue a potential related action
shares information with a third governmental entity. In our view, the
difficulties that could arise in trying to accurately and consistently
assess the award criteria as a result of such an indirect chain of
information transfer could pose undue burdens on our ability to
reasonably make reliable award determinations.\86\ In light of this, it
is appropriate to anticipate that a whistleblower who may want a
related-action award from any governmental entity should either provide
that information directly to the governmental entity or otherwise rely
on the Commission in its sole discretion to determine whether to share
the information with another governmental entity.
---------------------------------------------------------------------------

    \86\ We note that if a whistleblower can identify (or staff is
aware of) an instance where this type of sharing of information
clearly occurred, and provided that the claimant would be entitled
to an award had the individual shared the information directly, the
Commission would not be foreclosed from making a related-action
award. See 15 U.S.C. 78mm(a) (Exchange Act provision affording the
Commission discretionary waiver authority).
---------------------------------------------------------------------------

    Turning to the multiple-recovery rule that we are adopting as new
paragraph (3) of Rule 21F-3(b), this rule is appropriate for all of the
reasons specified in the Proposing Release. As we explained, those
considerations are: (i) Permitting potential multiple recoveries on a
single action could allow a total award in excess of the 30 percent
ceiling that Congress has historically imposed in establishing federal
whistleblower award programs in the modern era; (ii) in our view, the
related-action-award component of the Commission's whistleblower
program is intended to allow meritorious whistleblowers the opportunity
to obtain a financial award for the ancillary recoveries that otherwise
might not be covered by a whistleblower program even though the action
resulted from the same original information the whistleblower provided
to the Commission; and (iii) permitting whistleblowers to recover under
both our award program and a separate award program 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. This rule codifies the approach the
Commission has previously taken where another award program is
available in connection with an action for which a related-action award
is sought.\87\
---------------------------------------------------------------------------

    \87\ See In the Matter of the Claims for Award in Connection
with a Notice of Covered Action, Exchange Act Release No. 34-84046,
2018 WL 4488273 at *6 (Sept. 6, 2018).
---------------------------------------------------------------------------

    In deciding to adopt the rule as proposed, we are unpersuaded by
the concerns raised by those commenters who opposed the proposed rule.
Although one commenter opposed the rule on the theory that it was
unnecessary as the Commission had not encountered a matter involving a
potential multiple recovery, as noted, the Commission has, in fact,
issued a final order in connection with an award that involved a
potential multiple recovery.\88\ Further, we do not believe that our
multiple-recovery rule will disincentivize (because of uncertainty
about receiving an award or otherwise) whistleblowers from coming to
the Commission. Potential whistleblowers still stand to receive an
award both for any Commission covered action \89\ and any ancillary
action that may produce an award under the alternative whistleblower
program. We do not agree that our rule should result in any appreciable
additional delay for whistleblowers in receiving an award
determination; in assessing this threshold question, the Commission and
the CRS should be able to rely on publicly available information to
determine the relative relationship of the other governmental entity's
action to our whistleblower program and to the other potentially
applicable award program.\90\
---------------------------------------------------------------------------

    \88\ Id.
    \89\ And as discussed below in connection with new Rule 21F-
6(c), the incentive to come forward to potentially receive an award
on a Commission action should be increased as a result of that rule
amendment. This is because (subject to certain conditions) Rule 21F-
6(c) will establish a presumption where the aggregate maximum award
for actions resulting from a whistleblower's original information is
$5 million or less (and the negative Award Factors are not present),
that the Award Amount be set at the statutory maximum.
    \90\ We use the term ``governmental entity'' in the Description
of Final Rule Amendments to refer to self-regulatory organizations,
state governments and their various agencies, and federal government
agencies and departments. The terminology is intended to capture not
just governmental entities that may currently have a whistleblower
program, but governmental entities that in the future may adopt or
oversee a whistleblower program.
---------------------------------------------------------------------------

    We do not believe that our rule should impact a whistleblower's
confidentiality protections under Section 21F(h)(2) of the Exchange Act
because those protections--to the extent that they apply in any given
context--are not contingent on the recovery of an award in connection
with another governmental entity's action. We are also unpersuaded that
our rule will impose an undue burden on a whistleblower by forcing a
whistleblower to submit information to another governmental entity that
may have its own whistleblower award program; in our view, if Congress
or some other governmental entity has established a whistleblower
program, it is not unreasonable to expect that a whistleblower should
comply with that program's requirements for submitting information in
order to be eligible for an award under it.
    As we explained at the time that we proposed this rule, 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 has and will continue to 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 will 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 program that potentially applies to that type of
law-enforcement action.\91\ To take an example, we would not expect
that our program would apply under the new rule to a DOJ action that
charges a scheme to avoid tax obligations and imposes monetary
sanctions; the IRS's award program would have a more direct and
relevant connection to the case than the Commission's whistleblower
program.\92\ In addition, we would not expect the IRS's award program
to apply to a Commission securities fraud action.
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    \91\ To the extent that a state adopts a whistleblower award
program relating directly to state securities law violations, we
generally anticipate the Commission will find that the state award
program should be the operative whistleblower program to determine
whether to reward the whistleblower for that state action rather
than the Commission's award program. The state program would likely
be the more direct or relevant program and thus the appropriate
avenue for the whistleblower to seek an award.
    \92\ 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 will likely treat the matter as a
related action notwithstanding any potential restitution ordered due
to any tax violations included within the case.
---------------------------------------------------------------------------

    We considered the alternatives advanced by commenters but believe
that our approach continues to be appropriate. We disagree that another
governmental entity's action should be excluded from our program in all
instances when another whistleblower award program might apply; it is
preferable to continue to review each such case to determine whether
based on the particular facts and circumstances it has a closer
relationship to our whistleblower program or the alternative program.
We are also unpersuaded that a whistleblower should be able either to
collect a supplemental award from us up to a 30 percent total recovery
from the various programs (e.g., the Commission would have the
discretion to add an additional amount to ``cap off'' up to 30 percent
any award another governmental entity made that was below our statutory
cap). Nor are we persuaded that a whistleblower should be allowed to
choose which award (e.g., the Commission's award for a related action
versus another governmental entity's award for that same related
action) to accept after learning the award determination from each of
the potentially applicable award programs. These proposals are in our
view needlessly inefficient, as both proposals would have both agencies
conduct independent assessments of a whistleblower's contribution to
the same action; further, as we explained above, including by the
example referencing the IRS award program, we do not believe that
Congress ever intended for multiple governmental award programs to
yield awards on the same action.\93\ Further, we are not persuaded that
the potential existence of different eligibility requirements cuts
against our rule. If we determine that another award program has a more
direct or relevant connection to a particular action brought by another
governmental entity, in our view it is fair and reasonable to require
the whistleblower to meet all the same criteria and to be subject to
the same award considerations that would be applied to any other
applicant seeking a recovery under that other program.
---------------------------------------------------------------------------

    \93\ One commenter argued that the new rule is inconsistent with
the definition of related action in Exchange Act Section 21F(a)(5)
because, according to the commenter, the ``plain meaning'' of that
provision states that the Commission ``shall pay'' an award for an
action or proceeding brought by another authority without any
qualification or limitation based on the existence of an alternative
whistleblower award program. See letters from Kohn, Kohn &
Colapinto, LLP (Sept. 10, 2020) (``Kohn, Kohn & Colapinto Sept. 10,
2020 Letter''). The Commission has previously noted that, ``on its
face, Exchange Act Section 21F does not exclude from the definition
of related action those judicial or administrative actions . . .
that have a less direct or relevant connection to our whistleblower
program than another whistleblower scheme.'' In the Matter of the
Claims for Award in Connection with a Notice of Covered Action,
Exchange Act Release No. 34-84046, 2018 WL 4488273 at *6 (Sept. 6,
2018). Nonetheless, as the Commission has previously explained, we
``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.'' Id. The commenter further noted that ``the whistleblower
advocacy community has never supported a `double recovery' concept''
and suggested we extend the CFTC ``double recovery'' rule that the
Commission adopted in 2011 so that it bars recoveries from other
comparable programs. For the reasons discussed above and in the
proposing release, we decline to do so because we believe that the
new rule provides the Commission with appropriate flexibility in
addressing situations that implicate possible multiple recoveries
and should foster a more coherent approach for the resolution of
award matters that potentially implicate multiple whistleblower
award programs.
---------------------------------------------------------------------------

    Lastly, we have determined to repeal existing Rule 21F-3(b)(3)
relating to the CFTC's award program and to allow our new multiple-
recovery rule to apply to all actions brought by another governmental
entity where one or more alternative whistleblower award programs might
apply. A uniform rule to apply in these situations--including where the
CFTC's whistleblower award program is implicated--is administratively
preferable. This is because the Commission will have the authority
under the new rule (based on the specific facts and circumstances of
the underlying action) to assess which award program should more
logically apply to an action brought by another authority. Under the
rule we are repealing, the Commission has no such authority and instead
the determination as to which whistleblower program applies is largely
controlled (as the existing rule provides for) by the happenstance of
which agency (i.e., the SEC or the CFTC) first adjudicates an award
application in connection with that action.

D. Rule 21F-6--Clarification of Commission's Discretion

    Rule 21F-6 establishes the analytical framework that the Commission
follows in exercising its discretion in both setting the appropriate
amount of an award in connection with a particular Commission or
related action and in determining an individual award for each
whistleblower where the Commission makes awards to more than one
whistleblower in connection with the same action.
    In comments received in response to proposed new paragraphs (c) and
(d) of Rule 21F-6 (discussed further below), there appeared to be some
confusion regarding the Commission's discretion to consider the dollar
amount of monetary sanctions collected, as opposed to focusing
exclusively on a percentage amount (i.e., between 10% and 30%) in the
statutory range when applying the Award Factors and setting the Award
Amount. Certain commenters appeared to assert that nothing in the
statute suggests that the Commission, in setting the Award Amount, may
consider the actual dollar value of the sanctions collected.\94\ In
addition, a hypothetical in the 2018 Proposing Release may have added
to this confusion.\95\ As the discussion below demonstrates, the
statement that the Commission would be unable to consider the dollar
amount, and rather only the percentage amount, in the context of the
hypothetical was incorrect and did not reflect the Commission's
prevailing understanding of its discretion or its practice in
considering and applying the Award Factors and setting Award Amounts.
---------------------------------------------------------------------------

    \94\ See TAF Letter.
    \95\ See Whistleblower Program Rules, 83 FR at 34,713-714, nn.
99 & 105 (July 20, 2018).
---------------------------------------------------------------------------

    The Commission has had and continues to have broad discretion in
applying the Award Factors and setting the Award Amount, including the
discretion to consider and apply the Award Factors in percentage terms,

dollar terms or some combination thereof.
    The statutory language in Section 21F demonstrates that Congress
gave the Commission the ability--and the discretion--to consider the
application of the award criteria provided for in Rule 21F-6(a) and (b)
in dollar terms. For example, the language in Section 21F(c)(1)
repeatedly refers to the Commission setting the ``amount of the
award,'' which indicates that Congress afforded the Commission
discretion to consider the application of the Award Factors, and make
an award to a meritorious whistleblower, in dollar terms.\96\ Nothing
in the text of Section 21F indicates any intent on the part of Congress
to limit the Commission's discretion in this regard.\97\ Indeed, the
only reference to percentages in the award provisions of the statute is
for purposes of setting the upper and lower bounds in dollar terms for
the Award Amount.\98\
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    \96\ 15 U.S.C. 78u-6(c)(1)(B)(i)(IV).
    \97\ See also Whistleblower Program Rules, 83 FR at 34,713-
34,713, nn. 99 & 105 (July 20, 2018).
    \98\ 15 U.S.C. 78u-6(b)(1)(A) and (B).
---------------------------------------------------------------------------

    To implement Section 21F(c)(1) of the Exchange Act, the Commission
adopted Exchange Act Rule 21F-5 (titled ``Amount of award'') and 21F-6
(titled ``Criteria for determining amount of award''). Rule 21F-5(a)
reiterates the statutory direction that the ``determination of the
amount of an award is in the discretion of the Commission.'' Rule 21F-
5(b) states that, if all the conditions for a whistleblower award are
satisfied, ``the Commission will then decide the percentage amount of
the award applying the criteria set forth in'' Rule 21F-6.
    We further observe that the Commission's long-standing
interpretation of Rule 21F-6(a)(3)--law enforcement interest--already
specifically references the Commission's discretion to consider the
monetary sanctions and the potential Award Amount when assessing that
factor, and, as described below, we are adding language to clarify (as
contemplated by the statutory language) that the Commission has the
same discretion with respect to the other existing Award Factors.
    We also note that, as a practical matter, award determinations have
historically been recommended to the Commission by the CRS as both a
dollar amount and the corresponding percentage of monetary sanctions
collected. In considering the application of the Award Factors and the
Award Amount, it therefore would have been difficult as a practicable
matter to require that the relevant dollar amounts not be considered by
the Commission in applying the Award Factors. Moreover, it has been the
Commission's long-standing general practice in the public whistleblower
award orders (and notices announcing awards) to describe those awards
in actual dollar amounts, not percentages (which are generally
redacted). This practice has been followed for the common-sense reason
that actual dollar figures--not abstract percentages--are most likely
to advance the whistleblower award program's goal of incentivizing
potential whistleblowers.
    To clarify the Commission's discretionary authority, we are
modifying Rule 21F-6 to state that the Commission may consider the
factors, and only the factors set forth in in Rule 21F-6, in relation
to the facts and circumstances of each case in setting the dollar or
percentage amount of the award.\99\ This new language, by expressly
referring to setting the dollar or percentage amount of the award,
makes clear that the Commission and the CRS may, in applying the Award
Factors specified in Rule 21F-6(a) and (b) and setting the Award
Amount, consider the potential dollar amount that corresponds to the
application of any of the factors.\100\
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    \99\ We are also making two other modifications to the first
sentence of Rule 21F-6. First, we are replacing the words ``award
percentage'' with just ``award.'' We are making this technical
modification because we announce awards to the public primarily in
dollar terms. Second, for the same reasons discussed above in
footnote 81, we are removing the word ``unique.''
    \100\ As is the case with every aspect of any award
determination under Rule 21F-6, the Commission shall not consider
the balance of the IPF when exercising this express discretionary
authority or the discretionary authority afforded by new Rule 21F-
6(c). Section 21F(c)(1)(B)(ii) prohibits the Commission from
adjusting an individual award based on the availability of money in
the IPF; specifically, it provides that ``[i]n determining the
amount of an award,'' the Commission ``shall not take into
consideration the balance of the [IPF].''
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    The discretion that we are clarifying is the Commission's
discretion in applying the Award Factors--in percentage terms, dollar
terms, or some combination thereof--and setting the Award Amount. This
is not a separate (post application of the Award Factors) assessment of
whether Award Amounts are too small or too large. We also are affirming
that Award Amounts should be based exclusively on the application of
the Award Factors.\101\
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    \101\ In deciding to clarify that the Commission may consider
the dollar amount as it assesses the Award Factors, the Commission
has determined that it is not necessary or appropriate to amend the
Award Factors themselves. In the future, the Commission could amend
the Award Factors through appropriate notice and comment.
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    We believe the clarity and transparency provided by this amendment
will not affect the determination of Award Amounts. The process for
recommendations from the CRS is not changing except for some increases
due to the presumption described above for awards of less than $5
million. The Commission has had and continues to have the discretion to
apply the Award Factors to determine the Award Amount within the
statutory range. We also believe that the clarity and transparency
provided by this and the other amendments the Commission is adopting,
will further incentivize whistleblowers to come forward and to do so as
promptly as practicable.\102\
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    \102\ To add further transparency, we are also modifying Rule
21F-10 and Rule 21F-11 to make clear that, in applying the award
factors specified in Rule 21F-6 and determining the award dollar and
percentage amounts set forth in the preliminary determination, the
award factors may be considered by the SEC staff and the Commission
in dollar terms, percentage terms or some combination thereof. We
further clarify that, should a claimant choose to contest a
preliminary determination, the claimant may set forth the reasons
for the objection to the proposed amount of an award, including the
grounds therefore, in dollar terms, percentage terms or some
combination thereof.
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    The amendment we are adopting was the subject of a question posed
to commenters in the proposing release. While the proposing release
included proposed rule text that embodied the Commission's general
discretion to consider the dollar amount of any increase or decrease
under paragraphs (a) and (b) for large awards (along with the proposed
specific mechanism for increasing small awards under $2 million), the
proposing release asked commenters whether this approach should ``cover
all awards considered under Exchange Act Rule 21F-6[.]'' The proposing
release explained that this approach might ``allow [the Commission] to
better assess each enhancement or reduction in dollar terms'' to permit
the Commission to ``more realistically and concretely assess the impact
of each award factor on the overall award to ensure that [the
Commission is] appropriately rewarding the whistleblower and
incentivizing future whistleblowers[.]'' \103\
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    \103\ The proposing release noted that ``to the extent that
individuals are motivated to come forward based on a potential
award, it is the total dollar payout that'' is generally relevant to
them.
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E. Rule 21F-6(c)--Establishment of a Presumption of the Maximum
Statutory Amount for Certain Awards

1. Proposed Rule
    The Commission proposed paragraph (c) to Rule 21F-6, which would
add to Rule 21F-6's existing framework by providing a specific
mechanism for the

Commission to exercise its discretion to increase any awards to a
single whistleblower that would likely be below $2 million.
    Specifically, proposed paragraph (c) would provide that, ``[i]f 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 increase the award so that
the likely total 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 the 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) nor will the total amount awarded to
all whistleblowers in the aggregate be greater than 30 percent.''
    The proposed rule further provided that an increase to an Award
Amount would not be available in the event that the award either
involved any of the negative award criteria specified in Rule 21F-
6(b)--i.e., culpability, unreasonable reporting delay, or interference
with a company's internal compliance processes or reporting program--or
triggered the culpability provision of Rule 21F-16. The Commission
explained that it believed proposed paragraph (c) could provide an
important additional incentive for potential whistleblowers to come
forward.
2. Comments Received
    The Commission received several comments on the proposed rule. Each
of the commenters who supported the proposed rule suggested that it
could help incentivize more whistleblowers to come forward.\104\ By
contrast, commenters who opposed the rule suggested: The proposed rule
would not encourage whistleblowers to come forward because it would
introduce additional uncertainty into the award process; \105\ there is
no justification for an enhancement to an award if the existing Award
Factors do not justify a higher award; \106\ the Commission already has
the authority to enhance an award up to the maximum possible amount so
the proposed rule change is unnecessary; \107\ and Congress did not
authorize the Commission to apply any dollar amount considerations in
setting an Award Amount.\108\
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    \104\ AFREF Letter; SIFMA Letter; Public Citizen Letter; Cohen
Milstein Letter; Markopolos Letter.
    \105\ Cornell Law Clinic Letter; Think Computer Letter.
    \106\ CCMC Letter.
    \107\ Morrell Letter.
    \108\ Better Markets Letter.
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3. Final Rule
    After considering the various views expressed in the comments, and
consistent with the Commission's determination that increased
transparency, efficiency, and clarity will enhance the overall
effectiveness of the program, we have determined to adopt the proposed
rule with several modifications.\109\
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    \109\ In addition to these modifications to the rule text, we
are making one further change from the proposing release. The
Commission intends new Rule 21F-6(c) to be applicable to all claims
pending as of the effective date of these amendments so that those
pending claims may receive the benefits of this amendment.
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    First, the reach of the rule will be expanded to include a greater
number of potential award matters. Specifically, the rule will now be
presumptively available, subject to the exclusions set forth below, if
the statutory maximum award of 30 percent of the monetary sanctions
collected in any covered and related action(s), in the aggregate, is $5
million or less, and the Commission determines there is no reasonable
anticipation that future collections would cause the statutory maximum
award to be paid to any whistleblower to exceed $5 million in the
aggregate, and the negative Award Factors are not present.
    In selecting $5 million as the ceiling for the new rule's
application, we considered the fact that a majority of awards should,
based on historical experience, be subject to this new rule. We believe
there will be gains in efficiency from streamlining the award
determination process for awards where the whistleblower did not
trigger any of the negative award factors in Exchange Act Rule 6(b). In
this category of cases, experience with the program demonstrates that
there is no significant programmatic value in expending time and effort
weighing minor increases or reductions to the Award Amount. Further, we
believe application of this rule will save the majority of meritorious
whistleblowers time and effort in explaining what they believe is the
appropriate Award Amount in their award applications and in any
subsequent response the whistleblower might file in response to a
preliminary determination. Moreover, providing increased transparency,
efficiency and clarity for this wide range of awards should help to
further incentivize individuals to come forward because they can have
more comfort, provided the criteria for the rule's application are met,
that they may receive an award that is at the statutory maximum.
    Second, we have revised the criteria for eligibility of the rule to
allow more claimants to potentially receive the maximum statutory
award. Consistent with the proposed rule, to be eligible for
application of the new rule a claimant must not have acted in such a
manner that he or she triggered the negative award factors specified in
either Rule 21F-6(b)(1) (culpability in connection with the securities
law violation) or Rule 21F-6(b)(3) (malfeasance in connection with an
internal compliance program) with respect to the claimant's award
application, and the claimant must not have acted in a manner that
triggers Rule 21F-16 (concerning awards to whistleblowers who engage in
highly culpable misconduct). In a change from the proposed rule, a
claimant's unreasonable delay under Rule 21F-6(b)(2) will not
automatically disqualify the individual from receiving the enhancement
under the new rule. Rather, the Commission in certain cases may
exercise its discretion to allow a claimant to receive the benefit of
the statutory maximum authorized by this rule notwithstanding his or
her unreasonable delay, where the Commission determines that it is
consistent with the public interest, the promotion of investor
protection, and the objectives of the whistleblower program. Although
we anticipate that this discretionary authority will not be routinely
used where unreasonable delay has occurred, it will be available to the
Commission where the public interest, investor protection and
programmatic considerations counsel in favor of allowing the claimant
to receive the statutory maximum.\110\
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    \110\ In determining whether compelling circumstances exist to
use this authority, the Commission may consider (among other
relevant facts and circumstances presented by a particular award
application) the following: Whether the period of delay that is
determined to be unreasonable was on balance minimal; whether
investors experienced additional harm during the period of
unreasonable delay; and whether the Commission's ability to pursue
an enforcement action was appreciably jeopardized as a result of the
period of unreasonable delay.
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    Third, subject to the below exceptions, the new rule embodies a
presumption that the Commission will

pay a meritorious claimant the statutory maximum amount where none of
the negative award criteria specified in Rule 21F-6(b)--i.e.,
culpability, unreasonable reporting delay, or interference with a
company's internal compliance processes or reporting program--are
implicated and the award claim does not trigger Rule 21F-16 (concerning
awards to whistleblowers who engage in culpable conduct).
    Fourth, consistent with the presumption of the rule's
applicability, an otherwise eligible claimant will not receive the
statutory maximum if the Commission determines in its discretion that
either: (1) The claimant's assistance as assessed by the Commission
under Rule 21F-6(a) was, under the relevant facts and circumstances,
limited; or (2) the Commission determines that providing the statutory
maximum in the particular matter would be inconsistent with the public
interest, investor protection or the objectives of the whistleblower
program (the ``Exclusions''). These two Exclusions--which are the only
means by which the presumption discussed above may be overcome--are
intended to preserve the Commission's discretion to deny a statutory-
maximum enhancement in situations where doing so is consistent with the
program's overall goals.
    The first Exclusion, for example, will allow the Commission
discretion to deny a statutory-maximum enhancement where it determines
that the assistance provided by the whistleblower was limited, with the
degree of assistance provided by the whistleblower to be assessed in
accordance with Rule 21F-6(a). This exclusion is consistent with prior
past Commission practice in the case of limited assistance. Based on
experience with the program, the Commission does not expect the
presumption to be overcome by this Exclusion in the vast majority of
circumstances.
    The second discretionary Exclusion will preserve the Commission's
discretion to deny a statutory-maximum enhancement where relevant
circumstances counsel against an enhancement. As an example, if the
claimant has engaged in securities-law violations that were unrelated
to the conduct that formed the basis for the covered action, the
Commission could (in its discretion) exclude the claimant from
receiving a statutory-maximum enhancement.
    Fifth, although we anticipate that the Commission should have
little difficulty applying the presumptive enhancement afforded by Rule
21F-6(c) in cases involving a single meritorious whistleblower, the new