The SEC's proposed changes to the administrative rules that govern the WHISTLE BLOWER PROGRAM. Three of the SEC's proposed changes are discussed in detail.

Which of the SEC's three proposed changes do you find most acceptable, and why? Which of the three proposed changes do you find most objectionable, and why?

SECURITIES AND EXCHANGE all comments on the Commission's and Employment Anti-Retaliation COMMISSION internet website (http:/www.sec/gov/ Protection rules/proposed shim/). Comments are F. Proposed Amendment to Rule 21F-# To 17 CFR Parts 240 and 249 also available for website viewing and Add New Paragraph (d) To Provide the Commission With Additional Flexibility [Release No. 34-83557; File No. $7-16-18] printing in the Commission's Public Regarding the Forms Used in Connection Reference Room, 100 F Street NE RIN 3235-AM11 With the Whistleblower Program (and Washington, DC 20549, on official Corresponding Amendments to Rule Whistleblower Program Rules business days between the hours of 218-10, Rule 21F-11, and Rule 21F-12) 10:00 a.m. and 3:00 p.m. All comments G. Proposed Amendment to Rule 21F-# To AGENCY: Securities and Exchange received will be posted without change. Add New Paragraph (e) To Clarify and Commission. Persons submitting comments are Enhance the Commission's Authority To Address Claimants Who Submit False ACTION: Proposed rule. cautioned that we do not redact or edit personal identifying information from Information to the Commission or Who Abuse the Award Application Process SUMMARY: The Securities and Exchange comment submissions. You should H. Proposed Amendments to Rule 21F-0 Commission ("Commission"] is submit only information that you wish To Provide Additional Flexibility and proposing for public comment several to make available publicly. Clarity Regarding Form TCR (and amendments to the Commission's rules Studies, memoranda or other Corresponding Technical Amendments implementing its whistleblower substantive items may be added by the to Rule 21F-10, Rule 21F-11, and Rule program. Section 21F of the Securities Commission or staff to the comment file 21F-12) I. Proposed Amendment to Rule 21F-12 Exchange Act of 1934 ("Exchange Act") during this rulemaking. A notification of Regarding the Materials That May Form provides, among other things, that the the inclusion in the comment file of any the Basis of the Commission's Award Commission shall pay an award-under such materials will be made available Determination regulations prescribed by the on the Commission's website. To ensure J. Proposed Amendment to Rule 21F-13 Commission and subject to certain direct electronic receipt of such Regarding the Administrative Record on limitations-to eligible whistleblowers notifications, sign up through the *Stay Appeal who voluntarily provide the Connected" option at www.sec.gov to K. Proposed Rule 21F-18 Establishing a Commission with original information receive notifications by email. Summary Disposition Process L. Technical Amendment to Rule 21F- about a violation of the federal FOR FURTHER INFORMATION CONTACT: 4[=)(2) securities laws that leads to the Emily Pasquinelli, Office of the Ill. Proposed Interpretive Guidance successful enforcement of a covered Whistleblower, Division of Regarding the Meaning and Application judicial or administrative action, or a Enforcement, at (202) 551-5973; Brian of "independent analysis" as Defined in related action. On May 25, 2011, the A. Ochs, Office of the General Counsel, Exchange Act Rule 21F-4(b)(3) Commission adopted a comprehensive at (202) 551-5067, Securities and L. Background: "Original Information" and set of rules to implement the Exchange Commission, 100 F Street NE, Publicly Available Information whistleblower program. The proposed 1. "Independent Analysis" Washington, DC 20549. C. Leads to Successful Enforcement rules would make certain changes and SUPPLEMENTARY INFORMATION: The IV. Request for Comment Regarding a clarifications to the existing rules, as Commission is proposing to amend 17 Potential Discretionary Award well as several technical amendments. CFR 240.21F-3 ("Rule 21F-3"), Mechanism for Commission Actions The Commission is also including 240.21F-4 ("Rule 21F-4"], 240.21F-6 That Do Not Qualify as Covered Actions, interpretive guidance concerning the ["Rule 21F-6"), 240.21F-8 ("'Rule 21F- Involve Only a De Minimis Collection of terms "unreasonable delay" and B") through 240.21F-13 (" Rule 21F- Monetary Sanctions, or Are Based on "independent analysis." 13"). The Commission is also proposing Publicly Available Information V. General Request for Public Comment DATES: Comments should be received on to add a new rule that would be codified VI. Paperwork Reduction Act or before September 18, 2018. as 17 CFR 240.21F-18 ("'Rule 21F-18"). A. Background ADDRESSES: Comments may be Table of Contents B. Summary of the Proposed Amendments submitted by any of the following C. Burden and Cost Estimates Related to methods: I. Background the Proposed Amendments A. The Whistleblower Award Program D. Mandatory Collection of Information Electronic Comments B. Overview of the Proposed Rule Changes K. Confidentiality F. Request for Comment . Use the Commission's internet and Other Items II. Discussion of Proposed Amendments VIL. Economic Analysis comment form (http://www.sec.gov/ A. Proposed Amendment to Exchange Act A. Economic Baseline rules/proposed. shim]); or Rule 21F-4(d] Defining an "action" 1. Whistleblower Programs . Send an email to rule-commentso B. Proposed Amendment to Exchange Act 2. Supreme Court Decision in DigitalC. Effects of the Proposed Rules on . identify the criteria that the general in a criminal case, or a Efficiency, Compotition, and Capital Commission will consider in setting the Formation settlement agreement entered into by IX. Small Business Regulatory Enforcement percentage amount of an award. the Commission outside of the context Fairness Act The Commission's whistleblower of a judicial or administrative X. Regulatory Flexibility Act Certification program has made significant proceeding to address violations of the XL. Statutory Basis contributions to the effectiveness of the securities laws: We propose an List of Subjects in 17 CFR Parts 240 and 249 Commission's enforcement of the amendment that would expressly allow Text of the Proposed Amendments federal securities laws. The Commission for the payment of awards based on has morived over 22,000 whistleblower I. Background money collected under these types of lips since the inception of the program arrangements. Currently, our A. The Whistleblower Award Program through the end of Fiscal Year 2017. whistleblower rules do not address In July 2010, Congress amended the Original information provided by whether the Commission may pay an Exchange Act to add new Section 21F." whistleblowers has led to enforcement award when an eligible whistleblower That provision, entitled "Securities actions in which the Commission has voluntarily provides original Whistleblower Incentives and obtained over $1.4 billion in financial information that leads to a DPA or NPA Protection," established the remedies, including more than $740 entered into by DOJ or a state attorney Commission's whistleblower program. million in disgorgement of ill-gotten general in a criminal proceeding. Nor do or rules currently address whether the Among other things, Section 21F directs gains and interest, the majority of which that the Commission pay awards, has been or is scheduled to be returned Commission may pay an award to an subject to certain limitations and to harmed investors. The Commission eligible whistleblower who voluntarily conditions, to whistleblowers who has ordered over $266 million in provides information that leads to a settlement agreement entered into by voluntarily provide the Commission whistleblower awards to 65 individuals whose information and cooperation the Commission outside of the context with original information about a violation of the securities laws that assisted the Commission in bringing of a judicial or administrative leads to the successful enforcement of successful enforcement actions and, in proceeding to address violations of the an action brought by the Commission some instances, other enforcement securities laws. We are proposing to authorities in bringing related actions amend the definition of an "action" in that results in a covered judicial or administrative action ? and certain against wrongdoers. That said, Rule 21F-4(d) " to include, as administrative actions, these related actions. approximately $112 million of that In May 2011, the Commission amount was paid to just four arrangements, with the money paid under such arrangements deemed to be adopted a comprehensive set of rules to individuals in connection with two "monetary sanctions" under Rule 21F- implement the whistleblower program. Commission enforcement actions and a Ale)," and, thus to expressly permit us Those rules, which are codified at 17 related action.* CFR 240.21F-1 through 240.21F-17, We recognize that individuals who to pay awards thereon. . Elimination of potential double provide the operative definitions, step forward to provide information to recovery under the current definition of requirements, and processes related to the Commission may do so at great related action: We propose an the whistleblower program. Among personal peril and professional sacrifice. We view the three key tenets of the amendment to our rules to clarify that other things, these rules: * Define key terms and phrases in program-monetary awards, s law enforcement action would not Section 21F that determine whether an confidentiality, and retaliation qualify as a related action if the Commission determines that there is a individual's information qualifies for an protections-as complementary and award-terms such as "original critical to the success of the program. separate whistleblower award scheme that more appropriately applies to the information," "voluntary," and "leads B. Overview of the Proposed Rule enforcement action. Although neither to successful enforcement"; Changes and Other Items Section 21F of the Exchange Act (nor * specify the form and manner in After nearly seven years of experience the whistleblower program rules which an individual must submit administering the whistleblower thereunder) expressly addresses this information to qualify as a whistleblower eligible for an award; program, we have identified various situation, the Commission and the ways in which the program might Claims Review Staff in the context of * establish the procedures for benefit from additional rulemaking. We processing award applications have anonymous submissions; believe that the changes that we are interpreted the term "related action" * exclude certain individuals from eligibility, such as individuals who are. proposing will build on the program's under Section 21F to exclude those success by continuing to encourage matters brought by one of the entities or were at the time that they acquired individuals to come forward and by listed in Rule 21F-3(b)(1)7 for which the original information provided to the permitting us to more efficiently process there is a more directly applicable Commission, a member, officer, or award applications, among other award program. The proposed rule employee of a foreign government; potential benefits. would modify this interpretation. * explain which law-enforcement Based on our experience to date, we . Additional considerations for smallor were at the time that they anquired individuals to come forward and by listed in Rule 21F-3(b)(1)7 for which the original information provided to the permitting us to more efficiently process there is a more directly applicable Commission, a member, officer, o award applications, among other award program. The proposed rule employee of a foreign government; potential benefits. would ondify this interpretation. . explain which law-enforcement Based on our experience to date, we . Additional considerations for small proceedings undertaken by other propose the following substantive and exceedingly large awards: In the authorities may qualify for a related amendments to our rules context of potential awards that could action award from the Commission; . Allowing awards based on deferred yield a payout of $2 million or less to * establish the procedures for prosecution agreements ("DPAs" ) and a whistleblower, the proposed rules determining awards both in non -prosecution agreements ("NPAs") would authorize the Commission to Commission actions and related actions; entered into by the U.5. Department of adjust the award percentage upward and Justice ("DO") or a state attorney under certain circumstances (subject to the 20% statutory maximum) to an 15 U.S.G. 78u-6. " The munga (moun of those awards was 15 U.S.C. 78u-61] approximately $35 million and the madian award 17 (FR 240.218-4(d]. 3 15 0.S.C. 78u-6[ X5) win approximately $33 million. 17 CFR MOZIF-3EXIL 34704 Federal Register/ Vol. 83, No. 140/Friday, July 20, 2016/Proposed Rules amount that the Commission determines We believe that using the IFF to funds to replenish the IIF rather than more appropriately achieves the compensate whistleblowers who come making that money available to the program's objectives of rewarding forward with original information that United States Treasury, where they meritorious whistleblowers and leads to a DPA or NPA entered into by could be used for other important public sufficiently incentivizing future DOJ or a state attorney general, or a purposes. 10 whistleblowers who might otherwise be settlement agreement entered into by Beyond the amendments discussed concerned about the low dollar amount the Commission outside of the context above, we are proposing to modify of a potential award. Relatedly, in the of a judicial or administrative Exchange Act Rule 21F-2."1 The context of potential awards that could proceeding (provided the total money amendments that we are proposing to yield total collected monetary sanctions required to be paid in the action, this rule are in response to the Supreme of at least $100 million, the proposed including any other proceedings that Court's recent decision in Digital Realty rules would authorize the Commission arise out of the same nucleus of Trust, Inc. v. Somers. " In that decision, to adjust the award percentage so that it operative facts, exceeds $1,000 000) the Court held that Section 21Fla)(6) of would yield a payout (subject to the achieves both of these objectives. We the Exchange Act unambiguously 10% statutory minimum) that does not similarly believe that these objectives requires that an individual report a exceed an amount that is reasonably are furthered by providing the possible securities law violation to the necessary to reward the whistleblower Commission with additional discretion Commission in order to qualify for and to incentivize other similarly to determine that an action does not employment retaliation protection, and situated whistleblowers; however, in no qualify as a related action if Congress or that the Commission's rule interpreting event would the award be adjusted another authority has established a more the anti-retaliation protections in below $30 million." Currently, the directly applicable or relevant award Section 21F[h][1) more broadly was whistleblower rules do not expressly program. Additionally, we believe that therefore not entitled to deference. " We permit the Commission to consider these two objectives are furthered by are proposing to modify Rule 21F-2 so whether a relatively small or authorizing the Commission to adjust that it comports with the Court's exceedingly large potential payout is upward the award percentage in certain holding by, among other things, appropriate to advance the program's cases where the award would otherwise promulgateing a uniform definition of goals of rewarding whistleblowers and yield a payout of $2 million or less to "whistleblower" that would apply to all incentivizing future whistleblowers. We a whistleblower, as well as to consider aspects of Exchange Act Section 21F. are proposing to amend the whether, in the context of an award We are also proposing to provide certain whistleblower program rules to include issued in connection with certain large related clarifications to Rule 21F-2 and these considerations as additional Commission or related actions, any to address certain other interpretive whistleblower award mxoreds an questions that have arisen in connectionaward criteria. The three proposed rule changes amount that is reasonably necessary to with the Court's holding. described above are intended to serve advance the program's goals. Absent In addition to the foregoing two important and related objectives. this last amendment, the Commission amend ments, we are proposing several First, the amendments are designed to may find itself faced with the possibility other amendments that are intended to help ensure that an eligible, meritorious of paying out significantly large awards clarify and enhance curtain policies, whistleblower is appropriately that are in excess of the amounts practices, and procedures in rewarded for his or her efforts when the appropriate to advance the goals of the implementing the program. We are Commission or a related-action whistleblower program. These awards proposing to revise Exchange Act Rule authority recovers monetary sanctions could substantially diminish the IPF, 21F-4(e) 14 to clarify the definition of "monetary sanctions" so that it codifies from wrongdoing that violates the requiring the Commission to direct more securities laws. Second, the the agency's current understanding and amendments would help ensure that the Commission paid $43 million-its largest paryoul In application of that term. We are also Investor Protection Fund (IPF) that proposing to revise Exchange Act Rule individuals. For a complete description of the Congress has established to pay suchanisms What Congress astablished In ruplanish 21F-0 15 to provide the Commission meritorious whistleblowers is used in a ha Il'F, xox Section 21F[3] of the Exchange Mart, with additional flexibility to modify the manner that effectively and IS US.C. 76 83). Ganemally spanking, the IPPF in manner in which individuals may Funded in the following way: (i) Dopails of any appropriately leverages the IFF to submit Form TCR (Tip, Complaint or action collected by the Commi an in further the Commission's law- a judicial or administralive action brought by the Referral). We are similarly proposing to enforcement objectives." under the securities laws that is mot revise Exchange Act Rule 21F-; is to added to a disgorgement fund or other fund under provide the Commission with additional coxdian 308 of the Sartainm-Oxley Ard of 20102 (15 "In determining whether a large award would flexibility regarding the forms used in 15.C. 7245] or otherwise distributed to victims of provide a payout that goes beyond what would be a vinldion of the securities laws, unless the balance connection with the whistleblower memory teachings he pruynun's pools, we of the IFF of the lime the monetary sanction is program."" Further, we are proposing an anticipate that the Commission would samaidar, calleded minds $100, 000 010; deposits of may amendment to Exchange Act Rule 21F- among other factors, the value of the action added to a disyoga send fund or whistleblower's information and the personal and athur fund under section 308 of the Sarlammas-Daley 12 10 to clarify the list of materials that ado in reporting the Act of 2002 (15 U.S.C. 7246) that is not distributed the Commission may rely upon in -fornation. be the victims for whom the fund was sdublished, " By dulule, the IF "is calmblished in the walking the bulines of the disgorgement fund at the " Any funds used to replenish the I'F alberwise Tousury of the United States" and "is available In Lima the delormination is made not to distribule the would be directed be the Treasury for was in the Commission, wilboul further appropriation or monetary sanction In such victims ustands Funding dhar public: programs. fiscal your limitation," to pay "awards to $300 010 010; and [iim] if the amounts deposited in " 17 CFR 240.21F-Z whistleblower" under Sadio 21.[b] Exchange a IP'F under ilom [o) and (uij basu are not "138 5. CL 767 (2018). Aed 5218(1), 15 0.8.G. 78 6[1) The IPV may sufficient bo ulisly " whichlower award, the also be used In hand curtain limited activities of the 09 138 5. CL .4 761-61. Commission must deposit money into the fund Inspector General and the Office of the From the monetary sundions collected in the "# 17 CFR 240.218-4 Whistleblower. Au of the and May 2018, the balance covered action that the whistleblower's information 1 17 CER 240.21F-Q of the IFF for the fired lima fall below the $300 bed In Corvo if the money could have boon directed #17 CER 240.21F-E. million Barshold that triggers the statulary be victims of the violation] in an amount equal to 37 17 CFR 249. 1800 and 249.1801. replenishment mechanism; this secured when the the unsatisfied portion of the wward. "17 CFR 240.21F-12. Federal Register / Vol. 83, No. 140/Friday, July 20, 2016/Proposed Rules 34705 making an award determination. We are II. Discussion of Proposed Amendments 10 percent and 10 percent "of what has also proposing an amendment to Rule The proposed amendments are set been collected of the monetary 21F-13 10 to clarify the materials that forth below. sanctions imposed" in the action."0 may comprise the administrative record Proposed Rule 21F-4(d)(2) would for purposes of judicial review. A. Proposed Amendment to Exchange provide that, for purposes of making a Two further changes are designed to Act Rule 21F-4(d) 27 Defining an whistleblower award, a DPA or NPA help increase the Commission's "action" 28 entered into by DOJ or a state attorney efficiency in processing whistleblower Section 21F of the Exchange Act general in a criminal case would be award applications. We are proposing to authorizes us to pay whistleblower deemned to be an "administrative action" add paragraph (e) to Exchange Act Rule awards in relation to the "successful and any money required to be paid