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34300 Federal Register / Vol. 76, No. 113 / Monday, June 13, 2011 / Rules and Regulations

SECURITIES AND EXCHANGECOMMISSION

17 CFR Parts 240 and 249

[Release No. 3464545; File No. S73310]

RIN 3235AK78

Securities Whistleblower Incentivesand Protections

AGENCY: Securities and ExchangeCommission (Commission).

ACTION: Final rule.

SUMMARY: The Commission is adoptingrules and forms to implement Section21F of the Securities Exchange Act of1934 (Exchange Act) entitledSecurities Whistleblower Incentivesand Protection. The Dodd-Frank WallStreet Reform and Consumer ProtectionAct, enacted on July 21, 2010 (Dodd-Frank), established a whistleblower

program that requires the Commissionto pay an award, under regulationsprescribed by the Commission andsubject to certain limitations, to eligiblewhistleblowers who voluntarily providethe Commission with originalinformation about a violation of theFederal securities laws that leads to thesuccessful enforcement of a coveredjudicial or administrative action, or arelated action. Dodd-Frank alsoprohibits retaliation by employersagainst individuals who provide theCommission with information aboutpossible securities violations.

DATES: Effective Date: August 12, 2011.FOR FURTHER INFORMATION CONTACT:Sean X. McKessy, Securities andExchange Commission, Division ofEnforcement, 100 F Street, NE.,Washington, DC 20549, Tel. (202) 5514790, Fax (703) 8139322.

SUPPLEMENTARY INFORMATION: We areadopting new rules 21F1 through 21F17, and new Forms TCR and WBAPP,under the Securities Exchange Act of1934.

Table of Contents

I. Background and Summary

II. Description of the RulesA. Rule 21F1GeneralB. Rule 21F2Definition of a

Whistleblower C. Rule 21F3Payment of AwardD. Rule 21F4Other Definitions1. Voluntary Submission of Information2. Original Information3. Definition of Independent Knowledge4. Definition of Independent Analysis5. Rules 21F4(b)(i) Through (vi)

Exclusions From IndependentKnowledge and Independent Analysis

(a) Attorney-client privilege and other attorney conduct

(b) Responsible Company Personnel,Compliance Processes and IndependentPublic Accountants

(i) Proposed Rule 21F4(b)(4)(iii)(ii) Proposed Rules 21F4(b)(iv) and (v)(iii) Final Rules 21F4(b)(4)(iii) and (v)a. Rules 21F4(b)(4)(iii)(A) Through (C)

b. Rule 21F4(b)(4)(iii)(D)c. Rule 21F4(b)(4)(v)(c) Conviction for Violations of Law

(d) Rule 21F4(b)(4)(vi)Information Obtained From Excluded Persons

6. Original Source7. Original Source; Additional Information8. Original Source: Lookback9. Information That Leads to a Successful

Enforcement10. Action11. Monetary Sanctions12. Appropriate Regulatory Agency13. Appropriate Regulatory Authority14. SROE. Rule 21F5Amount of AwardF. Rule 21F6Criteria for Determining

Amount of AwardG. Rule 21F7Confidentiality of

Submissions

H. Rule 21F8EligibilityI. Rule 21F9Procedures for Submitting

Original InformationJ. Rule 21F10Procedures for Making a

Claim Based on a SuccessfulCommission Action

K. Rule 21F11Procedure for Making aClaim Based on a Successful RelatedAction

L. Rules 21F12 & 13Materials That MayBe Used as the Basis for an AwardDetermination and That May Comprisethe Record on Appeal; Right of Appeal

M. Rule 21F14Procedures Applicable toPayment of Awards

N. Rule 21F15No AmnestyO. Rule 21F16Awards to

Whistleblowers Who Engage in CulpableConduct

P. Rule 21F17Staff CommunicationsWith Whistleblowers

III. Paperwork Reduction ActIV. Economic AnalysisV. Regulatory Flexibility Act CertificationVI. Statutory Authority

I. Background and Summary

Section 922 of Dodd-Frank added newSection 21F to the Exchange Act,entitled Securities WhistleblowerIncentives and Protection. 1 Section21F directs that the Commission payawards, subject to certain limitationsand conditions, to whistleblowers whovoluntarily provide the Commissionwith original information about aviolation of the securities laws thatleads to the successful enforcement ofan action brought by the Commissionthat results in monetary sanctionsexceeding $1,000,000.

On November 3, 2010, we proposedRegulation 21F to implement new

1Public Law 111203, 922(a), 124 Stat 1841(2010).

Section 21F.2 The rules contained inproposed Regulation 21F definedcertain terms critical to the operation ofthe whistleblower program, outlined theprocedures for applying for awards andthe Commissions procedures formaking decisions on claims, andgenerally explained the scope of thewhistleblower program to the public

and to potential whistleblowers.We received more than 240 comment

letters and approximately 1300 formletters on the proposal.3 Commentersincluded individuals, whistlebloweradvocacy groups, public companies,corporate compliance personnel, lawfirms and individual lawyers,academics, professional associations,nonprofit organizations and audit firms.The comments addressed a wide rangeof issues. Many commenters providedviews on an issue we highlighted in theproposing releasethe interplay of thewhistleblower program and company

internal compliance processes.Commenters also expressed a range ofviews on other significant issues,including the proposed exclusions fromaward eligibility for certain categories ofindividuals or types of information, theavailability of awards to culpablewhistleblowers, the procedures forsubmitting information and making aclaim for an award, and the applicationof the statutory anti-retaliationprovision.

As discussed in more detail below, wehave carefully considered the commentsreceived on the proposed rules infashioning the final rules we adopt

today. We have made a number ofrevisions and refinements to theproposed rules. Taken together, we

believe these changes will better achievethe goals of the statutory whistleblowerprogram and advance effectiveenforcement of the Federal securitieslaws. The revisions of each proposedrule are described in more detailthroughout this release, but thefollowing are among the mostsignificant:

Internal Compliance: A significantissue discussed in the Proposing Releasewas the impact of the whistleblower

program on companies internalcompliance processes. While we did notpropose a requirement thatwhistleblowers report through internal

2Proposed Rules for Implementing theWhistleblower Provisions of Section 21F of theSecurities and Exchange Act of 1934, Release No.3463237 (Proposing Release).

3The public comments we received are availableat http://www.sec.gov/comments/s73310/s73310.shtml.In addition, to facilitate public inputon the Dodd-Frank Act, the Commission provideda series of e-mail links, organized by topic, on itsWeb site at http://www.sec.gov/spotlight/regreformcomments.shtml.
http://www.sec.gov/comments/s7-33-10/s73310.shtmlhttp://www.sec.gov/comments/s7-33-10/s73310.shtmlhttp://www.sec.gov/spotlight/regreformcomments.shtmlhttp://www.sec.gov/spotlight/regreformcomments.shtmlhttp://www.sec.gov/comments/s7-33-10/s73310.shtmlhttp://www.sec.gov/comments/s7-33-10/s73310.shtmlhttp://www.sec.gov/spotlight/regreformcomments.shtmlhttp://www.sec.gov/spotlight/regreformcomments.shtml


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Federal Register / Vol. 76, No. 113 / Monday, June 13, 2011 / Rules and Regulations 34301

compliance processes as a prerequisiteto eligibility for an award, we requestedcomment on this topic, and we includedin the proposed rules several otherelements designed to encouragepotential whistleblowers to utilizeinternal compliance. Commenters weresharply divided on the issues raised bythis topic. After considering these

different viewpoints, we havedetermined not to include a requirementthat whistleblowers report violationsinternally, but we have made additionalchanges to the rules to furtherincentivize whistleblowers to utilizetheir companies internal complianceand reporting systems whenappropriate. With respect to the criteria for

determining the amount of an award,the final rules expressly provide: first,that a whistleblowers voluntaryparticipation in an entitys internalcompliance and reporting systems is a

factor that can increase the amount of anaward; and, second, that awhistleblowers interference withinternal compliance and reporting is afactor that can decrease the amount ofan award. The final rules contain a provision

under which a whistleblower canreceive an award for reporting originalinformation to an entitys internalcompliance and reporting systems, if theentity reports information to theCommission that leads to a successfulCommission action. Under thisprovision, all the information provided

by the entity to the Commission will be

attributed to the whistleblower, whichmeans that the whistleblower will getcreditand potentially a greaterawardfor any additional informationgenerated by the entity in itsinvestigation. The final rule extends the time for

a whistleblower to report to theCommission after first reportinginternally and still be treated as if he orshe had reported to the Commission atthe earlier reporting date. We proposeda lookback period of 90 days after thewhistleblowers internal report, but inresponse to comments, we are extending

this period to 120 days in the final rules. Procedures for SubmittingInformation and Claims: The proposedrules set forth a two-step process forsubmitting information, which requiredthe submission of two different forms.In response to comments that urged usto streamline the procedures forsubmitting information, we haveadopted a simpler process, combiningthe two proposed forms into a singleForm TCR that would be submitted bya whistleblower under penalty ofperjury. With respect to the claims

application process, we have made onesection of that form optional to make theform less burdensome. We also describein greater detail below several otherfeatures of the process to assistwhistleblowers that we expect will

become part of the Office of theWhistleblowers standard practice.

Aggregation of smaller actions tomeet the $1,000,000 threshold: Theproposed rules stated that awards would

be available only when the Commissionhad successfully brought a singlejudicial or administrative action inwhich it obtained monetary sanctions ofmore than $1,000,000. In response tocomments, we have provided in thefinal rules that, for purposes of makingan award, we will aggregate two or moresmaller actions that arise from the samenucleus of operative facts. This willmake whistleblower awards available inmore cases.

Exclusions from award eligibilityfor certain persons and information:The proposed rules set forth a numberof exclusions from eligibility for certaincategories of persons and information.In response to comments suggesting thatsome of these exclusions were overly

broad or unclear, we have revised anumber of these provisions. Mostnotably, the final rules provide greaterclarity and specificity about the scope ofthe exclusions applicable to seniorofficials within an entity who learninformation about misconduct inconnection with the entitys processesfor identifying, reporting, andaddressing possible violations of law.

II. Description of the Rules

A. Rule 21F1General

Rule 21F1 provides a general, plainEnglish description of Section 21F ofthe Exchange Act. It sets forth thepurposes of the rules and states that theCommissions Office of theWhistleblower administers thewhistleblower program. In addition, therule states that, unless expresslyprovided for in the rules, no person isauthorized to make any offer or promise,or otherwise to bind the Commissionwith respect to the payment of an award

or the amount thereof.

B. Rule 21F2Definition of aWhistleblower

a. Proposed Rule

As proposed, Rule 21F2(a) defined awhistleblower as an individual who,alone or jointly with others, providesinformation to the Commission relatingto a potential violation of the securitieslaws. Under the proposed rule, acompany or another entity could notqualify as a whistleblower.

Paragraph (b) of the proposed rulestated that the anti-retaliationprotections set forth in Section 21F(h)(1)of the Exchange Act would applyirrespective of whether a whistleblowersatisfied all the procedures andconditions to qualify for an award underthe Commissions whistleblowerprogram. Similarly, the protections

against retaliation applied to anyindividual who provided information tothe Commission about a potentialviolation of the securities laws.

Paragraph (c) of the proposed rulestated that, to be eligible for an award,a whistleblower must submit originalinformation to the Commission inaccordance with all the procedures andconditions described in Proposed Rules21F4, 21F8, and 21F9.

b. Comments Received

Commenters advanced a number ofsuggestions to refine the definition of

whistleblower. Many commentersagreed that the definition ofwhistleblower should not turn onwhether a violation of the securitieslaws is ultimately adjudged to haveoccurred,4but expressed differingopinions on our proposal to use theterm potential violation. Onecommenter agreed that thewhistleblower definition should includethe term potential violationbecausethis would allow broad application ofthe anti-retaliation measures in Section21F.5 Several other commentersrecommended that the term potential

violation should be coupled with arequirement that the individual have areasonable belief or good faith beliefthat the information relates to asecurities law violation.6 Somecommenters suggested instead of theterm potential violation, we shoulduse the terms probable violation,likely violation, or claimedviolation. 7

On other aspects of the definition ofwhistleblower, one commenterrecommended that we clarify that aviolation of the securities laws relatesonly to the Federal securities laws and

not to violations of state or foreign

4See, e.g., letters from Committee on FederalRegulation of Securities, Section of Business Law,American Bar Association (ABA); Project ofGovernment Oversight (POGO); Jones Day; WellsFargo Advisors, LLC (Wells Fargo); and Society ofCorporate Governance Professionals.

5See letter from POGO.6See, e.g., letters from Jones Day; Wells Fargo;

and Morgan Lewis. As discussed further below inthe text, commenters asserted that a reasonablebelief or good faith standard is necessary toprevent employees from making bad-faithallegations of retaliation.

7See, e.g., letters from ABA; Goodwin Procter.


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securities laws.8 A few commentersrecommended that a whistleblower belimited to a person who providedinformation relating to a materialviolation of the securities laws.9

Two commenters disagreed with theproposed rules limiting whistleblowerstatus to natural persons,10 suggestingthat non-governmental organizations

and/or worker representatives,including labor unions, should bepermitted to bring claims.11

A number of commenters respondedto our request for comment on whetherwe should limit the definition ofwhistleblower to a person whoprovides information regardingviolations of the securities laws byanother personsome favoring this,12

others opposing it.13 Several of thecommenters recommended that we limitthe whistleblower definition based onan individuals relative culpability forthe reported violation. For example,some commenters stated that thedefinition ofwhistleblower shouldcover only individuals who reportviolations by another person, and whodid not participate in or facilitate theviolations.14

Commenters made several suggestionsrelating specifically to the scope of theanti-retaliation protections. Amongother things, commenters recommendedthat we expressly state in the rules thatthe anti-retaliation provisions do notapply to an individual if (1) he files afalse, fraudulent, or bad faith andmeritless submission; 15 (2) he lacks a

8See letter from ABA.9See, e.g., letters from ABA; and Society of

Corporate Secretaries and Governance Professionals(Society of Corporate Secretaries).

10See, e.g., joint letter from Voices for CorporateResponsibility, Change to Win, NationalEmployment Lawyers Association, GovernmentAccountability Project (VOICES); and Mike G.McCluir.

11See letter from VOICES.12See letters from Chris Barnard; Thompson Hine

LLP; William A. Jacobson, Angel Prado, and YaozhiYe (Cornell Securities Law Clinic); EvolutionPetroleum Corp.; Securities Industry and FinancialMarkets Association (SIFMA); The WashingtonLegal Foundation; Morgan Lewis; Continewity LLC;Davis Polk & Wardwell LLP (Davis Polk);Oppenheimer Funds.

13See, e.g., letters from Grohovsky, Vogel, andLambert (Grohovsky Group); Peter van Schaick.

14See, e.g., joint letter from Americans forLimited Government; Ryder Systems, Inc.;Financial Services Institute, Inc.; U.S. Chamber ofCommerce; Verizon; and White & Case, LLP(Chamber of Commerce Group).

15See, e.g., letters from Connolly & Finkel;National Association of Corporate Directors(NACD); Investment Company Institute (ICI);Valspar; Auditing Standards Committee of theAuditing Section of the American AccountingAssociation (Auditing Standards Committee); U.S.Chamber of Commerce Center for Capital MarketsCompetitiveness and the U.S. Chamber of Institutefor Legal Reform (CCMC); joint letter from GeneralElectric Company, Google, Inc., Honeywell, Inc.,

good faith or reasonable belief of aviolation; 16 or (3) the submission doesnot evince a reasonable likelihood of aviolation of securities laws. 17 Anothercommenter suggested the anti-retaliation provisions should only applyto those who qualify for an award.18

Several commenters proposed that theanti-retaliation provisions should

categorically exempt a companysadverse action against an employee

based on factors other thanwhistleblower status,19 such as engagingin culpable conduct,20 failing to complywith the reporting requirements of acompanys internal complianceprograms,21 or violating a professionalobligation to hold information inconfidence. 22 One commenterexplained that, without a categoricalexemption, the broad anti-retaliationprovisions of the statute could prompta wave of litigation alleging retaliationin such circumstances.23

Commenters made a series of othersuggestions related to the scope andenforceability of the anti-retaliationprotections, including that we should:(1) Clarify our authority to bring

JPMorgan Chase & Co., Microsoft Corporation andNorthrop Grumman Corporation (GE Group);Jones Day; TECO Energy. Two commenterssuggested that the Commission should considerwhether it can apply additional sanctions to anyperson who uses the whistleblower process in badfaith. See joint letter from the Financial ServicesRoundtable and the American Bankers Association(Financial Services Roundtable); letter from TECOEnergy.

16See letters from Chris Barnard; Paul Hastings.17See letter from Goodwin Proctor.18See letter from NACD (commenting that not

limiting anti-retaliation protection to those whosatisfy the conditions for an award opens the doorfor employees to submit fake allegations that maycause reputational harm to the company and/orunfairly embarrass corporate employees andleadership).

19See letters from Thompson Hine; Americans forLimited Government (ALG); AT&T; EqualEmployment Advisory Council (EEAC); Connolly& Finkel; ICI; GE Group; Society of CorporateSecretaries; Association of Corporate Counsel;Financial Services Roundtable; Davis Polk; ABA;joint letter from Allstate Insurance Company,American Institute of Certified Public Accountants,American Insurance Association, Americans forLimited Government, Association of CorporateCounsel, AT&T, Center for Business Ethics, DoverCorporation, FedEx Corporation, Financial Services

Institute, Inc., Pharmaceutical Research andManufacturers of America, Retail Industry LeadersAssociation, Royal Caribbean Cruises Ltd, RyderSystems, Inc., UPS, U.S. Chamber of Commerce,U.S. Chamber of Commerce Institute for LegalReform, Verizon and White & Case, LLP (AllstateGroup).

20See letters from ALG; Allstate Group; MorganLewis; Davis Polk; ABA.

21See letters from Thompson Hine; see alsoletters from ALG; Allstate Group; Connolly &Finkel; NACD; TECO Energy; Association ofCorporate Counsel.

22See letter from the ABA.23See letter from ALG; see also letter from

Allstate Group.

enforcement actions based onretaliation; 24 (2) provide that the anti-retaliation remedies may not be waived

by any agreement, policy, or conditionof employment; 25 and (3) exclude fromanti-retaliation protection employeeswhose submissions are based oninformation that is either publiclydisseminated or which the employee

should reasonably know is alreadyknown to the companys board ofdirectors or chief compliance officer, acourt, the Commission or anothergovernmental entity.26

c. Final Rule

In response to the comments, we havemade several changes to the definitionof whistleblower in Rule 21F2(a) andthe application of the anti-retaliationprovisions in Rule 21F2(b) to moreprecisely track the scope of Section21F(h)(1). We are adopting Rule 21F2(c) as proposed, but have re-designated

it as Rule 21F2(a)(2).With respect to the definition ofwhistleblower, we agree with thosecommenters who suggested that theterm potential violation may beimprecise, and thus in the final rulehave changed this to possibleviolation that has occurred, isongoing, or is about to occur. We

believe that this modification providesgreater clarity concerning when anindividual who provides us withinformation about possible violations,including possible future violations, ofthe securities laws qualifies as awhistleblower. An individual wouldmeet the definition of whistleblower ifhe or she provides information about apossible violation that is about tooccur.

Although some commentersrecommended that we use the termsprobable violation or likelyviolation, we have decided to use theterm possible violation. In our view,this requires that the information shouldindicate a facially plausible relationshipto some securities law violationfrivolous submissions would not qualifyfor whistleblower status. We believethat a higher standard requiring a

probable or likely violation isunnecessary, and would make itdifficult for the staff to promptly assesswhether to accord whistleblower statusto a submission.

In the final rule, the definition ofwhistleblower clarifies that thesubmission must relate to a violation of

24Letter from Alex Hoover; see also letters fromBryan Maloney; National Coordinating Committeefor Multiemployer Plans (NCCMP).

25See letter from Kaiser Saurborn & Mair.26See letter from ABA.


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the Federal securities laws, or a rule orregulation promulgated by theCommission. An individual whosubmits information that relates only toa state law or foreign law violationwould not satisfy the whistleblowerdefinition.

The final rule also clarifies that, toqualify as a whistleblower eligible for

the award program and the heightenedconfidentiality provisions of Section21F(h)(2) of the Exchange Act, anindividual must submit his or herinformation to the Commission inaccordance with the procedures setforth in Rule 21F9(a).27 Rule 21F9(a)establishes procedures for an individualto mail, fax, or electronically submit tous information relating to a possiblesecurities law violation. As proposed,our definition could have beenmisconstrued to apply to anyindividuals who provide us withinformation relating to a securities law

violation, including individuals whomwe subpoena and law enforcementpersonnel from other governmentalauthorities. This result would have beenoutside the intended scope of Section21F.

We have not added a requirement thatthe information relate to a materialviolation of the securities laws. We

believe that, rather than use amateriality threshold barrier that mightlimit the number of submissions to us,it is preferable for individuals toprovide us with any information theypossess about possible securitiesviolations (irrespective of whether itappears to relate to a material violation)and for us to evaluate whether theinformation warrants action.28 To theextent that commenters advanced thissuggestion as a way to preventindividuals from abusing the anti-retaliation protections afforded bySection 21F(h) of the Exchange Act, we

believe this issue is sufficientlyaddressed by the revisions to Rule 21F2(b), discussed further below. To theextent that commenters suggested thisapproach as a way to reduce frivoloussubmissions, we believe our use of theterm possible violation sufficiently

addresses this concern.We have decided not to extend the

definition of whistleblower beyondnatural persons because we believe thatthis is consistent with the statutory

27The statutory definition ofwhistleblower inSection 21F(a)(6) of the Exchange Act provides thatthe Commission may establish by rule orregulation the manner in which an individualprovides the Commission information so as toqualify as a whistleblower for purposes of theawards program.

28We do not expect potential whistleblowers tomake a fact-dependent materiality assessment.

definition, which provides that awhistleblower must be an individual.The ordinary meaning ofindividual isnatural person, 29 and nothing in thestatutory text or legislative historysuggests a different meaning here.Although one commenter identified areference to individuals in the FalseClaims Act to argue that the term should

be read to extend beyond naturalpersons, we note that the False ClaimsAct otherwise repeatedly refers towhistleblowers as persons (whichordinarily extends beyond naturalpersons),30 and we believe this explainsthe different result under that Act.31

We have modified proposed Rule21F2(b)s anti-retaliation protections,which are now in Rule 21F2(b)(1). Weare also adding Rule 21F2(b)(2), whichexpressly states that the Commissionmay enforce the anti-retaliationprovisions of Section 21F(h)(1) of theExchange Act and any rules

promulgated thereunder.Rule 21F2(b)(1) provides that, forpurposes of the anti-retaliationprotections afforded by Section 21F ofthe Exchange Act, an individual is awhistleblower if (i) he possesses areasonable belief that the information heis providing relates to a possiblesecurities law violation (or, whereapplicable, to a violation of theprovisions set forth in 18 U.S.C.1514A(a)) that has occurred, is ongoing,

29See, e.g., Jove Engineering, Inc. v. I.R.S., 92F.3d 1539, 155051 (11th Cir. 1996) (quotingBlacks Law Dictionary 773 (6th ed. 1996), and

Websters New Collegiate Dictionary 581 (8th ed.1979)).30Compare 31 U.S.C. 3730(e)(4)(B) with id.

3730(b)(1) (A person may bring a civil action* * *), and id. 3730(b)(4)(B)(5) (When a personbrings an action * * *).

31The ABA made several additionalrecommendations to clarify and/or narrow thedefinition of whistleblower. See letter from ABA.Specifically, the ABA recommended that we: (1)Exclude from the definition individuals whoprovide information that is clearly stale (e.g.,flawed disclosure in a ten-year old proxystatement); (2) require as part of the definition thatthe individual have a non-speculative basis in factor knowledge to support the potential securitieslaw violation; and (3) exclude from the definitionindividuals who provide information that is eitherpublicly disseminated [already] or which the

employee should reasonably know is alreadyknown to the companys board of directors or chiefcompliance officer, a court or the Commission oranother governmental entity. With respect toclearly stale information, we believe that this isalready addressed by the requirement that theinformation relate to a possible violation,becausewe view this term as encompassing a requirementthat the violation must be potentially actionable,which would preclude plainly stale violations.Similarly, we believe that the possible violationrequirement excludes submissions that have nobasis in fact or knowledge. Finally, rather thanaddressing in the threshold definition ofwhistleblower information that is already publiclyknown, we have addressed this issue in Rule 21F4 in the definition oforiginal information.

or is about to occur, and (ii) he reportsthat information in a manner describedin Section 21F(h)(1)(A).

With respect to the first prong of thisstandard, the employee must possess areasonable belief that the informationhe is providing relates to a possiblesecurities law violation (or, whereapplicable, to a violation of the

provisions set forth in 18 U.S.C.1514A(a)) 32 that has occurred, isongoing, or is about to occur. Thereasonable belief standard requiresthat the employee hold a subjectivelygenuine belief that the informationdemonstrates a possible violation, andthat this belief is one that a similarlysituated employee might reasonablypossess.33 We believe that requiring areasonable belief on the part of awhistleblower seeking anti-retaliationprotection strikes the appropriate

balance between encouragingindividuals to provide us with high-

quality tips without fear of retaliation,on the one hand, while not encouragingbad faith or frivolous reports, orpermitting abuse of the anti-retaliationprotections, on the other.34 Thisapproach is consistent with theapproach followed by various courtsthat have construed the anti-retaliationprovisions of other Federal statutes,including the False Claims Act,35 to

32This parenthetical reflects the fact that the anti-retaliation protection afforded by Section21F(h)(1)(A)(iii) includes not only reports ofsecurities law violations, but also various otherviolations of Federal law (e.g., 18 U.S.C. 1341, 1343,1344, and 1348).

33See, e.g., Livingston v. Wyeth, Inc., 520 F.3d344, 352 (4th Cir. 2008); Cloverv. Total Sys. Servs.,Inc., 176 F.3d 1346, 1351 (11th Cir. 1999).

34See, e.g., Parkerv. B&O R. Co., 652 F.2d 1012,1020 (DC Cir. 1981) (holding, in Title VII retaliationcase, that [t]he employer is sufficiently protectedagainst malicious accusations and frivolous claimsby a requirement that an employee seeking theprotection of the opposition clause demonstrate agood faith, reasonable belief that the challengedpractice violates Title VII); McDonnellv. Cisneros,84 F.3d 256, 259 (7th Cir.1996) (There is nothingwrong with disciplining an employee for filingfrivolous complaints); Hindsman v. Delta Airlines,2010 DOL Ad. Rev. Bd. 58 LEXIS at *10 (ARB Jun.30, 2010) (interpreting the anti-retaliationprovisions of the Wendell H. Ford AviationInvestment and Reform Act, which explicitly

excludes frivolous complaints and those brought inbad faith, as requiring a reasonable beliefby thewhistleblower that the violation of the statute hasoccurred).

35See Fanslowv. Chi. Mfg, Ctr., 384 F.3d 469, 480(7th Cir. 2004) (noting that several circuits had heldthat the relevant inquiry to determine whether anemployees actions are protected under the FalseClaims Act is whether (1) the employee in goodfaith believes, and (2) a reasonable employee in thesame or similar circumstances might believe, thatthe employer is committing fraud against thegovernment) (citing Moore v. Cal. Inst. of Tech., JetPropulsion Lab, 275 F.3d 838, 845 (9th Cir. 2002);Wilkins v. St. Louis, 314 F.3d 927, 933 (8th Cir.2002), and McNeilv. Empl. Sec. Dept, 2002 Wash.

Continued


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require that a whistleblower have areasonable belief that he or she isreporting a violation of that statute evenwhere the statute does not expresslyrequire such a showing.36

The second prong of the Rule 21F2(b)(1) standard provides that, forpurposes of the anti-retaliationprotections, an individual must provide

the information in a manner describedin Section 21F(h)(1)(A). This change tothe rule reflects the fact that thestatutory anti-retaliation protectionsapply to three different categories ofwhistleblowers, and the third categoryincludes individuals who report topersons or governmental authoritiesother than the Commission.Specifically, Section 21F(h)(1)(A)(iii)which incorporate the anti-retaliationprotections specified in Section 806 ofthe Sarbanes-Oxley Act, 18 U.S.C.1514A(a)(1)(C)provides anti-retaliation protections for employees of

public companies, subsidiaries whosefinancial information is included in theconsolidated financial statements ofpublic companies, and nationallyrecognized statistical ratingorganizations 37 when these employeesreport to (i) A Federal regulatory or lawenforcement agency, (ii) any member ofCongress or committee of Congress, or(iii) a person with supervisory authorityover the employee or such other personworking for the employer who hasauthority to investigate, discover, orterminate misconduct. However, the

App. LEXIS 1900, at *15*16 (Wash. Ct. App. Aug.

9, 2002) (same)).36See, e.g., Calhoun v. United States Dept of

Labor(US DOL), 576 F.3d 201, 212 (4th Cir. 2009)(anti-retaliation provisions of the SurfaceAssistance Transportation Act); Knoxv. U.S. DOL,232 Fed. App. 255, 25859 (4th Cir. 2007) (CleanAir Act); Williams v. U.S. DOL, 157 Fed. Appx.57576 (4th Cir. 2005) (Toxic Substances ControlAct, Solid Waste Disposal Act and Clean Air Act);see also Vinnettv. Mitsubishi Power Systems, 2010DOL Ad. Rev. Bd. LEXIS 69 at *12 (ARB Jul. 27,2010) (Energy Reorganization Act requiresreasonable belief of violation); Carterv. ElectricalDistrict No. 2 of Pinal County, 1995 DOL Sec. LaborLEXIS 153 (July 26, 1995) (requiring reasonablebelief under anti-retaliation provisions ofenvironmental statutes). Other anti-retaliationprovisions, such as the anti-retaliation provisionsenacted by Section 806 the Sarbanes-Oxley Act of

2002, expressly contain areasonable belief

standard. See 18 U.S.C. 1514A(a).37The anti-retaliation protections afforded by

Section 806 of the Sarbanes-Oxley Act have alsobeen read to cover employees of agents orcontractors of public companies in certainsituations. See Klopfenstein v. PCC Holdings Corp,2006 DOL Ad. Rev. Bd. LEXIS 50 (ARB May 31,2006) (employee of a private subsidiary of a publiccompany was covered under Section 806 whereprivate subsidiary acted at direction of publiccompany in taking adverse action againstcomplainant); Lawson v. FMR LLC, 724 F. Supp. 2d167, 169 (D. Mass. 2010) (employees of privateinvestment advisers to investment companies werecovered by Section 806), on appeal, No. 102240(1st Cir.).

retaliation protections for internalreporting afforded by Section21F(h)(1)(A) do not broadly apply toemployees of entities other than publiccompanies.38

In addition, Rule 21F2(b)(1)(iii)provides that the retaliation protectionsapply to a whistleblower irrespective ofwhether the whistleblower is ultimately

entitled to an award. This provision ofthe rule restates a result compelled bythe text of Section 21F(h)(1), which onits face provides retaliation protection towhistleblowers irrespective of whetherthey actually collect an award.39

Rule 21F2(b)(2) states that Section21F(h)(1) of the Exchange Act, includingany rules promulgated thereunder, shall

be enforceable in an action orproceeding brought by the Commission.Because the anti-retaliation provisionsare codified within the Exchange Act,we agree with commenters that we haveenforcement authority for violations of

Section 21F(h)(1) by employers whoretaliate against employees for makingreports in accordance with Section21F.40

With regard to the other significantcomments made regarding the anti-retaliation provisions in Rule 21F2(b),for the reasons set forth below we findthat it is either inappropriate orunnecessary to make the modificationsthat those commenters recommended.Regarding the comments that we shouldcategorically provide that employeeswho make whistleblower reports to usmay be disciplined for reasons

independent of their whistleblowingactivities, we think this is unnecessary.By its terms, the statute only prohibitsadverse employment actions that aretaken because of any lawful act by thewhistleblower to provide information;adverse employment actions taken forother reasons are not covered. Moreover,there is a well-established legalframework for making this factualdetermination on a case-by case basis,41

38 In a few limited situationsreporting byemployees of subsidiaries and NRSROs covered bySOX Section 806, and by employees whose reportswere required or protected under SOX or theExchange Act, see Section 21F(h)(1)(A)(iii)internal reporting is expressly protected.

39 Indeed, providing whistleblowers anti-retaliation protection only if they ultimately receivean award could unduly deter whistleblowers fromcoming forward with information. Under thatapproach, a whistleblower would not be protectedfrom retaliation if he or she had provided accurateinformation about the employers violation, but forsome reason no successful Commission action wasbrought or the whistleblower was not awarded apayment.

40Section 21F(h)(1)(B).41This framework involves burden-shifting

analysis. See, e.g, Roadway Express, Inc. v. U.S.DOL, 495 F.3d 477, 48182 (7th Cir. 2007); Scottv.Metropolitan Health Corp., 234 Fed Appx. 341, 346

and we see no indication that Congressintended to depart from this frameworkhere.42

With regard to the commentexpressing concern that entities mightrequire employees to waive their anti-retaliation rights under Section 21F, we

believe that possibility is foreclosed bythe Exchange Act. Specifically, because

Section 21F is codified in the ExchangeAct, it is covered by Section 29(a) of theExchange Act, which specificallyprovides that [a]ny condition,stipulation, or provision binding anyperson to waive compliance with anyprovision of this title or any rule orregulation thereunder * * * shall bevoid. 43 Thus, under Section 29(a),employers may not require employees towaive or limit their anti-retaliationrights under Section 21F.

C. Rule 21F3Payment of Award

a. Proposed Rule

Paragraphs (a) and (b) of ProposedRule 21F3 summarized the statutory

(6th Cir. 2007) (applying burden shifting analysis toretaliation claim under the False Claims Act). Seegenerally McDonnell Douglas Corp. v. Green, 411U.S. 792 (1973). It provides that (1) the employeemust first make aprima facie case of retaliation(that is, that he or she engaged in protected activity,has suffered an adverse employment action, andthat the action was causally connected to theprotected activity), (2) the burden then shifts to theemployer to articulate a legitimate, non-retaliatoryreason for its employment decision, after which (3)the burden shifts to the employee to show that theproffered legitimate reason is in fact a pretext andthat the job action was the result of the defendantsretaliatory animus. E.g., Collazo v. Bristol-MyersSquibb Mfg, Inc., 617 F.3d 39, 46 (1st Cir. 2010)

(citations and quotations omitted). While anti-retaliation claims brought under the Sarbanes-OxleyAct of 2002 (SOX) (unlike with Section 21F) aregoverned by a slightly different framework, underthat framework the determination of whether anemployee was disciplined for retaliatory orlegitimate reasons is likewise a fact-bound inquiry.SOX claims are governed by the proceduresapplicable to whistleblower claims brought underthe Wendell H. Ford Aviation Investment andReform Act for the 21st Century. See 18 U.S.C.1514A(b)(2). Under that statute, the employeebears the initial burden of making a prima facieshowing of retaliatory discrimination because of aspecific act; once the employee makes thatshowing, [t]he burden then shifts to the employerto rebut the employees prima facie case bydemonstrating by clear and convincing evidencethat the employer would have taken the same

personnel action in the absence of protectedactivity. See Dayv. Staples, Inc., 555 F.3d 42, 53(1st Cir. 2009).

42We note that where Congress intended tocategorically exclude from anti-retaliationprotections of certain statutes those employees who,without any direction from the employer,deliberatively committed violations of thosestatutes, it has expressly said so. See., e.g., 33 U.S.C.1367(d) (excluding such employees from anti-retaliation protections of Federal Water PollutionControl Act); 15 U.S.C. 2622(e) (TOSCA); 42 U.S.C.6971(d) (Solid Waste Disposal Act); 42 U.S.C.7622(g) (Clean Air Act); 42 U.S.C. 9610(d)(CERCLA); 42 U.S.C. 5851(g) (EnergyReorganization Act).

4315 U.S.C. 78cc(a).


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requirements for payment of an awardbased on a covered action or a relatedaction. Paragraph (a) stated that, subjectto the eligibility requirements in theRegulation, the Commission will pay anaward or awards to one or morewhistleblowers who voluntarily providethe Commission with originalinformation that leads to the successful

enforcement by the Commission of aFederal court or administrative action inwhich the Commission obtainsmonetary sanctions totaling more than$1,000,000. Paragraph (b) described thecircumstances under which theCommission would also pay an award tothe whistleblower based upon monetarysanctions that are collected from arelated action. Payment based on therelated action would occur if thewhistleblowers original information ledthe Commission to obtain monetarysanctions totaling more than $1,000,000,the related action is based upon the

same original information that led to thesuccessful enforcement of theCommission action, and the relatedaction is brought by the AttorneyGeneral of the United States, anappropriate regulatory agency, a self-regulatory organization, or a stateattorney general in a criminal case.

Paragraph (c) of Proposed Rule 21F3 explained that the Commission mustdetermine whether the originalinformation that the whistleblower gaveto the Commission also led to thesuccessful enforcement of a relatedaction using the same criteria used toevaluate awards for Commission

actions. To help make thisdetermination, the Commission mayseek confirmation of the relevant factsregarding the whistleblowers assistancefrom the authority that brought therelated action. However, the proposedrule stated that the Commission woulddeny an award to a whistleblower if theCommission determined that the criteriafor an award are not satisfied or if theCommission was unable to obtainsufficient and reliable information aboutthe related action.

Paragraph (d) of Proposed Rule 21F3 provided that the Commission would

not make an award in a related actionif an award already has been granted tothe whistleblower by the CommodityFutures Trading Commission (CFTC)for that same action pursuant to itswhistleblower award program undersection 23 of the Commodity ExchangeAct.44 Proposed Rule 21F3(d) alsoprovided that, if the CFTC haspreviously denied an award in a relatedaction, the whistleblower will becollaterally estopped from relitigating

44See 7 U.S.C. 26.

any issues before the Commission thatwere necessary to the CFTCs denial.


We received a few comments on theproposed rules treatment of relatedactions.

One commenter objected to paragraph(c) to the extent that it would preclude

a recovery in situations where theCommission is unable to obtainsufficient and reliable information aboutthe related action to make a conclusivedetermination of the whistleblowerscontribution to the success of the relatedaction, suggesting instead that the ruleinclude a mechanism for inter-agencycoordination to allow the Commissionto understand the whistleblowerscontribution to the related action.45

Another commenter challengedparagraph (c) because it would precludean award for a whistleblower insituations where the Department of

Justice or another entity pursues asuccessful action based on awhistleblowers tip that the Commissionforwarded, but the Commission does not

bring an enforcement action.46

With respect to proposed paragraph(d) and the overlap with CFTC actions,one commenter commended theCommission for clarifying that theCommission will not make an award ina related action if the CFTC has alreadymade an award to the whistleblower onthat action,47 while anotheracknowledged that there should not bedouble recoveries, but stated that thereshould be no automatic rule that would

bar rewards because the interaction ofthe Commission and CFTC programscan be adjudicated on a case-by-case

basis.48

c. Final Rule

After reviewing the comments, wehave decided to adopt Rule 21F3substantially as proposed.49 Withrespect to related actions, we do not

believe that inter-agency coordinationcan always ensure that the Commissionwill obtain sufficient and reliableinformation about a whistleblowerscontribution to the success of a related

45See letter from VOICES.46See letter from Stuart D. Meissner, LLC.47See letter from Society of Corporate Secretaries.48 See letter from the National Whistleblowers

Center (NWC).49 In the final rule, we have grouped proposed

paragraphs (b)(d) together under the headingrelated actions, and renumbered these paragraphs(b)(1)(b)(3), respectively. We have also changed theterm appropriate regulatory agency toappropriate regulatory authority to more closelycomport with the terms of Section 21F and toclarify that our rules regarding payment for awardsin connection with related actions govern actionsbrought by other agencies, not Commission actions.See discussion below under Rule 21F4(g).

action, and thus we continue to believethat there is a need for paragraph(b)(2).50 We have not modified the ruleto permit a whistleblower to recover ina related action absent a successfulCommission action, because the statuteexpressly requires a successfulCommission action before there can bea related action upon which awhistleblower may recover.51

With respect to the interrelation withCFTC actions, we are adopting the rulesubstantially as proposed because itprovides claimants with a clearstatement of how the Commission willaddress any issues that arise where aclaimant pursues either a doublerecovery or a second bite at the apple

by filing an application for an award ona related action after having alreadypursued an award on the same actionunder the CFTCs whistleblower awardsprogram.52 Our Proposing Release had

included the qualification that the issuemust have been necessary to theCFTCs determination, but we believethis requirement would have introducedunwarranted disputes over whether aparticular issue was actually necessary.Therefore, we have made a slightmodification to provide that the CFTCneed only have decided the issueagainst the award claimant.

50 In cases where the Commission coordinatesclosely with an entity that ultimately brings arelated action, we anticipate that Commission staffwill know and will be able to provide informationabout the whistleblowers contribution to the

coordinated efforts. We have added a reference tonew Rule 21F12(a)(5) which provides that neitherthe Commission nor the Claims Review Staff ispermitted to rely upon any information receivedfrom the entity that brought the related action if theentity has precluded us from also sharing thatinformation with a claimant. The reference to Rule21F12(a)(5) makes clear that if the Commission isunable to receive sufficient and reliable informationthat is available for the claimants review, theCommission will deny the claimants related-actionaward request.

51See Section 21F(a)(5) of the Exchange Act, 15U.S.C. 78u6(a)(5) (related action must be basedupon the original information * * * that led to thesuccessful enforcement of the Commission action).

52Several comment letters suggested that a quitam action under the False Claims Act, 31 U.S.C.3729 et seq, could qualify as a related action. See,

e.g., letter from VOICES. This is not correct. A quitam action is not brought by the Attorney Generalof the United States as is required under thedefinition ofrelated action in Section 21F(a)(5) ofthe Exchange Act. In a qui tam action, the relatorbring[s] the action in the name of theGovernment, see Vermont Agency of NaturalResources v. United States ex rel. Stevens, 529 U.S.765, 769 (2000), and thereafter the Attorney Generalmay elect to intervene and proceed with theaction, 31 U.S.C. 3730(b)(2), 3730(b)(4). Moreover,given that Congress has specifically provided a 1530% award for successful qui tam plaintiffs, see 31U.S.C. 3730(d)(1)(2), we do not believe Congressintended Section 21F of the Exchange Act to permitadditional recovery for the same action above whatit specified in the False Claims Act.


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D. Rule 21F4Other Definitions

Although the statute defines severalrelevant terms, Rule 21F4 defines otherterms that are important tounderstanding the scope of thewhistleblower award program, in orderto provide greater clarity and certaintyabout the operation and scope of theprogram.

1. Rule 21F4(a)Voluntary submissionof information

a. Proposed Rule

Under Section 21F(b)(1) of theExchange Act,53 whistleblowers areeligible for awards only when theyvoluntarily provide originalinformation about securities violationsto the Commission. Proposed Rule 21F4(a)(1) defined a submission as madevoluntarily if a whistleblowerprovided the Commission withinformation before receiving anyrequest, inquiry, or demand from theCommission, Congress, any otherFederal, state or local authority, anyself-regulatory organization, or thePublic Company Accounting OversightBoard about a matter to which theinformation in the whistleblowerssubmission was relevant. The proposedrule covered both formal and informalrequests. Thus under the proposed rule,a whistleblowers submission would not

be considered voluntary if thewhistleblower was contacted by theCommission or one of the otherauthorities first, whether or not thewhistleblowers response was

compelled by subpoena or otherapplicable law.

As our Proposing Release explained,this approach was intended to create astrong incentive for whistleblowers tocome forward early with informationabout possible violations of the Federalsecurities laws, rather than wait to beapproached by investigators. For thesame reasons, Proposed Rule 21F4(a)(2) provided that a whistleblowerssubmission of documents or informationwould not be deemed voluntary if thedocuments or information were withinthe scope of a prior request, inquiry, or

demand to the whistleblowersemployer, unless the employer failed tomake production to the requestingauthority in a timely manner.

Proposed Rule 21F4(a)(3) providedthat a submission also would not beconsidered voluntary if thewhistleblower was under a pre-existinglegal or contractual duty to report thesecurities violations to the Commissionor to one of the other designatedauthorities.

5315 U.S.C. 78u6(b)(1).


Commenters had diverse perspectiveson our proposal to require thatwhistleblowers come forward beforethey receive either a formal or informalrequest or demand from theCommission or one of the otherdesignated authorities about any matter

relevant to their submission. Somecommenters believed that our proposedrule was too restrictive. For example,one commenter urged that allinformation provided by awhistleblower should be treated asvoluntary until the whistleblower istestifying under compulsion of asubpoena.54 Another commentersuggested that persons who are firstcontacted by an authority should remaineligible for awards if they provideinformation about transactions oroccurrences beyond the specificparameters of the request.55 A thirdcommenter expressed concern that ourproposed rule could have the effect of

barring whistleblowers in cases wherethe whistleblowers information isarguably relevant to a generalinformational request from an authority,even though the authority is not focusedon the issue on which the whistleblowermight report.56

Other commenters took the view thatour proposed rule did not go far enoughin precluding whistleblowersubmissions from being treated asvoluntary. A number of commenters

urged that our rules also preclude anindividual from making a voluntarysubmission after the individual has beencontacted for information in the courseof a companys internal investigation orother internal review.57 In response toone specific request for comment, othercommenters advocated that we not treata submission as voluntary if thewhistleblower was aware of agovernmental or internal investigationat the time of the submission, whetheror not the whistleblower received a

54See letter from NWC.55See letter from Bijan Amini.56See letter from Taxpayers Against Fraud

(TAF). As an example, this commenter pointedout that a request by a municipal bond issuer forcompleted transaction documents from aGuaranteed Investment Contract (GIC) providercould be interpreted to preclude a voluntarysubmission of whistleblower allegations that theGIC provider engaged in bid rigging.

57See letters from CCMC; Jones Day; and GEGroup (arguing that a person who is questioned byan employer about a matter should not be permittedsubsequently to become a whistleblower unless heor she provided the employer substantially thesame information in response to the employersquestioning).

request from the Commission or one ofthe other authorities.58

Our request for comment on whethera whistleblowers submission should bedeemed to be voluntary if theinformation was within the scope of aprevious request to the whistleblowersemployer (Proposed Rule 21F4(a)(2))also generated diverse reactions. Some

commenters urged that we eliminatethis provision because it could have asweeping effect in cutting off largenumbers of potential whistleblowers, inparticular in industry-wideinvestigations.59 Other commenterssupported the exclusion and suggestedthat it be expanded in various ways.60

Our proposed rule to precludewhistleblowers from actingvoluntarily if they are under a pre-existing legal or contractual duty toreport the violations to the Commissionor another authority (Proposed Rule21F4(a)(3)) also generated variedcomment. Some commenters opposedthe exclusion on the grounds thatSection 21F(c)(2) of the of the ExchangeAct sets forth a specific list of personswhom Congress deemed to be ineligiblefor awards, some as a result of their pre-existing duties.61 These commentersurged that the Commission should notexpand these exclusions, as doing sowould be inconsistent withCongressional intent and wouldundermine the purposes of Section21F.62 One of these commentersasserted, for example, that the proposedrule could result in barring submissionsfrom individual employees if regulators

require companies under their

58See letters from ABA, Wells Fargo, and theNational Society of Compliance Professionals(NSCP).

59See letters from Section on Corporation,Finance and Securities Law of the District ofColumbia Bar (DC Bar), Daniel J. Hurson,Continewitty LLC.

60See letters from SIFMA (urging elimination ofthe exception that would permit an employee tomake a voluntary submission if the employer didnot produce the documents or information in atimely manner), Wells Fargo (same); NCSP(employee should be regarded as having received arequest to an employer if there is a reasonablelikelihood that the employee would have beencontacted by the employer in responding to therequest); and the Institute of Internal Auditors(should expand exclusion to other persons withinthe scope of a request, such as contractors, agents,and service providers).

61Section 21F(c)(2), 15 U.S.C. 78u6(c)(2), setsforth four categories of individuals who areineligible for whistleblower awards. These includeemployees of the Commission and of certain otherauthorities, persons who are convicted of a criminalviolation in relation to action for which they wouldotherwise be eligible for an award, auditors in caseswhere a submission would be contrary to therequirements of Section 10A of the Exchange Act,and persons who fail to submit information in theform required by the Commissions rules.

62See letters from NWC; Stuart D. Meissner, LLC;NCCMP; DC Bar; and Daniel J. Hurson.


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jurisdiction to report violations of law,and could also preclude submissionsfrom some senior corporate managerswho are obligated under Federalprocurement regulations to reportviolations of various Federal criminallaws, False Claims Act violations andoverpayments on government contractsto agency inspectors general and to

contracting officers.63 This samecommenter also expressed concern thatthe Commission should not be in aposition of having to decide whetherwhistleblowers from within state ormunicipal corporations have pre-existing obligations to report violations.

Other commenters favored the legalduty exclusion and recommended thatits reach be clarified and extended. Inparticular, these commenters suggestedthat the exclusion should be applied tovarious categories of individuals in thecorporate context. Several commentersurged that we not consider submissions

to be

voluntary

in circumstanceswhere an employee or an outsideservice provider has a duty to reportmisconduct to a company.64 Anothercommenter suggested that a companysprincipal financial officer, principalexecutive officer, senior management,audit committee, and board of directorsshould be viewed as having a legal dutyto report violations to the government

because of the officer certificationrequirements of Section 302 of theSarbanes-Oxley Act, and the provisionsregarding reporting of illegal acts underSection 10A of the Exchange Act.65

Our request for comment concerning

whether the legal duty limitation onvoluntary submissions should apply toall government employees prompted anumber of responses. Some commentersappeared to take the view thatgovernment employees who areinvolved in law enforcement or theregulation of business or financialservices should be deemed to have alegal duty to report violations.66 Othercommenters indicated that governmentemployees should be viewed as havinga duty to report violations that theyuncover in the course of their officialduties.67

Finally, most commenters whoresponded to our request for comment

63See letter from the DC Bar, citing73 FR 67064(December 2008).

64See letters from NSCP and from FinancialServices Roundtable.

6515 U.S.C. 78j1; see letter from the CornellSecurities Law Clinic.

66See letters from Patrick Burns, ICI, AuditingStandards Committee, and TRACE International,Inc.

67See letters from the NACD and GrohovskyGroup. See also letter from the Institute of InternalAuditors (a general preclusion of governmentemployees would be appropriate.).

on whether the list of other authoritiesin the rule should include foreignauthorities stated that foreignauthorities should be included.68 Twocommenters argued against thisapproach. One of these emphasized thatthe Commission cannot be assured thatall foreign authorities will shareinformation they may obtain concerning

possible violations of U.S. securitieslaws, and that it would be difficult forthe Commission in many instances todetermine whether an individual oweda legal duty under foreign law to reporta violation to a foreign authority.69

Another similarly argued that the factthat a whistleblower received a requestfrom a foreign authority would notcompel the whistleblower to provide theinformation to the Commission.70

c. Final Rule

After considering the comments, wehave decided to adopt the rule withcertain modifications. Although wecontinue to believe that a requirementthat the whistleblower come forward

before being contacted by governmentinvestigators is both good policy andconsistent with existing case law fromrelated areas,71 we agree with theconcerns expressed by somecommenters that our proposed rulemight have the unintended result ofdeterring high-quality submissions as athreshold matter based on an overly-

broad construction of the concept ofvoluntariness. In response to thisconcern, we have made several changesto the final rule.

As adopted, paragraph (1) of Rule21F4(a) now provides that asubmission of information is deemed tohave been made voluntarily if thewhistleblower makes his or hersubmission before a request, inquiry, ordemand that relates to the subject matterof the submission is directed to thewhistleblower or anyone representingthe whistleblower (such as an attorney)(i) By the Commission; (ii) inconnection with an investigation,inspection, or examination by the PublicCompany Accounting Oversight Board(PCAOB) or any self-regulatory

68See letters from Auditing StandardsCommittee; NSCP; Continewity, LLC; Society ofCorporate Secretaries; Institute of Internal Auditors.

69See letter from Georg Merkl.70See letter from VOICES.71Cf. Barth v. Ridgedale Electric, Inc., 44 F.3d

699 (8th Cir. 1994); United States ex rel. Paranichv. Sorgnard, 396 F.3d 326 (3d Cir. 2005) (rejectingargument that information provided beyond thatrequired by subpoena is voluntary for purposes ofFalse Claims Act); United States ex rel. Fine v.Chevron, USA, Inc., 72 F.3d 740 (9th Cir. 1995),cert. denied, 517 U.S.1233 (1996) (rejectingargument that provision of information to theGovernment is always voluntary unless compelledby subpoena).

organization; 72 or (iii) in connectionwith an investigation by Congress, anyother authority of the Federalgovernment, or a state Attorney Generalor securities regulatory authority.

Thus, rather than apply to allinformation requests of any kind, as wasproposed, our final rule narrows thetypes of requests that that may preclude

a later whistleblower submission frombeing treated as voluntary. Allrequests from the Commission are stillcovered, as we believe that awhistleblower award should not beavailable to an individual who makes asubmission after first being questionedabout a matter (or otherwise requestedto provide information) by theCommission staff acting pursuant to anyof our investigative or regulatoryauthorities. Only an investigativerequest made by one of the otherdesignated authorities will triggerapplication of the rule, except that a

request made in connection with anexamination or inspection, as well as aninvestigative request, by staff of thePCAOB or a self-regulatory organizationwill also render a whistleblowerssubsequent submission relating to thesame subject matter not voluntary.This provision recognizes the importantrelationship that frequently exists

between examinations and enforcementinvestigations, as well as our regulatoryoversight of the PCAOB and self-regulatory organizations. However, therule only precludes a whistleblowerfrom making a voluntary submission ifa previous request, as described, was

directed to the whistleblower or to hisor her personal representative. Forexample, an examination requestdirected to a broker-dealer or aninvestment adviser would notautomatically foreclose whistleblowersubmissions related to the subjectmatter of the exam from all employeesof the entity. However, if a firmemployee were interviewed byexaminers, the employee could not latermake a voluntary submission relatedto the subject matter of the interview.73

We have also narrowed the list ofauthorities set forth in the rule by

limiting state and local authorities tostate Attorneys General and statesecurities regulatory authorities.

72The term self-regulatory organization isdefined in Rule 21F4(h).

73As is further discussed below, individuals whowait to make their submission until after a requestis directed to their employer will not face an easypath to an award. We expect to scrutinize all of theattendant circumstances carefully in determiningwhether such submissions significantlycontributed to a successful enforcement actionunder Rule 21F4(c)(2) in view of the previousrequest to the employer on the same or relatedsubject matter.


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Accordingly, whistleblowers will havethe opportunity to submit informationto the Commission voluntarily evenafter they receive requests from otherstate and local authorities. This changerecognizes the fact that the Commissionless regularly receives informationthrough cooperative arrangements withstate and local authorities other than

state Attorneys General and statesecurities regulatory authorities.74

As adopted, our rule retains theprovision (now placed in a newly-designated paragraph (2)) that awhistleblower who receives a request,inquiry, or demand as described inparagraph (1) first will not be able tomake a subsequent voluntarysubmission of information that relates tothe subject matter of the request,inquiry, or demand, even if a responseis not compelled by subpoena or otherapplicable law.75 We believe that thisapproach strikes an appropriate balance

between, on the one hand, permittingany submission to be consideredvoluntary as long as it is notcompelled, and, on the other hand,precluding a submission from being

74We have also determined not to expand the listof authorities in Rule 21F4(a) to include foreignauthorities. Foreign authorities operate underdifferent legal regimes, with different standards.Further, as some commenters pointed out, whetherand under what circumstances the Commissionmay receive information obtained by a foreignauthority is more uncertain than is the case of otherFederal authorities, and state Attorneys General orsecurities regulators. In addition, we may havelimited ability to evaluate the scope of a requestfrom a foreign authority to an individual, and

whether it relates to the subject matter of theindividuals whistleblower submission. We note,however, that in cases where we request theassistance of a foreign authority to obtaindocuments or information through a memorandumof understanding, and the foreign authority sendsa corresponding request to one of its countrysresidents, we will treat the request as coming fromus for purposes of our rule, with the result that asubsequent whistleblower submission on the samesubject matter from the foreign resident will not betreated as voluntary.

75One commenter asked us to clarify that, aftera whistleblower makes an initial voluntarysubmission, if the staff subsequently contacts thewhistleblower and requests additional information,any information so provided will be eligible for anaward. See letter from Stuart D. Meissner, LLC.While we agree that this should ordinarily be the

case with respect to routine follow-upcommunications with most whistleblowers, theremay be circumstances where the whistleblowersadditional provision of information would not bedeemed voluntary. For example, if thewhistleblower only provides us with more detailedinformation pursuant to a cooperation agreementwith the Department of Justice, we would not viewthe whistleblower as having voluntarily providedall of the subsequent information. In addition,potential whistleblowers are cautioned that Rule21F8(b) requires, as a condition of awardeligibility, that a whistleblower provide the staffwith all additional information in thewhistleblowers possession that is related to thesubject matter of the whistleblowers submission ina complete and truthful manner.

treated as voluntary whenever awhistleblower may have become awareof an investigation or other inquirycovered by the rule, regardless ofwhether the relevant authoritycontacted the whistleblower forinformation. A standard based on thereceipt of a subpoena would go too farin permitting individuals to claim

whistleblower awards even after beingdirectly asked about conduct by staff ofthe Commission or other authorities. Wedo not believe either that Congressintended this result, or that it issuggested by existing law.76 Conversely,a rule that prohibited a whistleblowerfrom acting voluntarily any time thewhistleblower became aware of aninvestigation or other inquiry covered

by the rule is overly inclusive becausethe subject of the inquiry may not beclear to potential whistleblowers withvaluable information or these potentialwhistleblowers may not be known to the

Commission. Accordingly, such aninterpretation ofvoluntary is likely tohave a negative impact on ourEnforcement program by reducing theopportunities for us to receive high-quality, valuable information in manycircumstances.77 Such a rule wouldcreate the difficult problem ofdetermining whether a whistleblowerwas actually aware of an investigationor other inquiry before he or she cameforward.

For similar reasons, we reject thesuggestion of some commenters that awhistleblower should not be permittedto make a voluntary submission after

being contacted for information in thecourse of an internal investigation.Elsewhere in our rules, we haveattempted to create strong incentives foremployees to continue to utilize their

76One commenter expressed concern that manyemployees are required to sign confidentialityagreements that may prevent them from providinginformation to the Commission without a subpoena.See letter from David Sanford. We cautionemployers that, as adopted, Rule 21F17(a)provides that no person may take any action toimpede a whistleblower from communicatingdirectly with the Commission about a possiblesecurities law violation, including by enforcing orthreatening to enforce a confidentiality agreement.

Further, Section 21F(h)(1)(A) of the Exchange Actprohibits any form of retaliation by an employeragainst a whistleblower because of any lawful actdone by the whistleblower in providing informationto the Commission in accordance with Section 21F.15 U.S.C. 78u6(h)(1)(A)(i).

77For example, an individual who becomes awareof an investigation and who has valuableinformation or documents to offer may not, in theordinary course, be approached by investigators.This is particularly likely to be the case if theindividual is not directly or indirectly involved inthe conduct under investigation. We do not believethat it would be appropriate to adopt a definitionofvoluntary that might prevent such individualsfrom coming forward and assisting our staff aswhistleblowers.

employers internal compliance andother processes for receiving andaddressing reports of possible violationsof law. If a whistleblower took any stepsto undermine the integrity of suchsystems or processes, we will considerthat conduct as a factor that maydecrease the amount of any award.78

However, a principal purpose of Section

21F is to promote effective enforcementof the Federal securities laws byproviding incentives for persons withknowledge of misconduct to comeforward and share their informationwith the Commission. Although weacknowledge that internal investigationscan be an important component ofcorporate compliance, and althoughthere are existing incentives forcompanies to self-report violations,79

providing information to personsconducting an internal investigation, orsimply being contacted by them, maynot, without more, achieve the statutory

purpose of getting high-quality, originalinformation about securities violationsdirectly into the hands of Commissionstaff.

As noted, paragraph (1) of Rule 21F4(a) provides that a whistleblowersubmission will not be deemedvoluntary if made after we or anotherof the designated authorities havealready contacted the whistleblower (orhis or her representative) with aninvestigative or other covered request,inquiry, or demand that relates to thesubject matter of the submission. Thislanguage is intended to provide clearerguidance than use of the word

relevant in the proposed rule. Thedetermination of whether an inquiryrelates to the subject matter of awhistleblowers submission will dependon the nature and scope of the inquiryand on the facts and circumstances ofeach case. Generally speaking, however,we will consider this test to be metand therefore the whistleblowerssubmission not to be voluntaryevenif the submission provides moreinformation than was specificallyrequested, if it only describes additionalinstances of the same or similarconduct, provides additional details, or

describes other conduct that is closelyrelated as part of a single scheme. Forexample, if our staff sends an individualan investigative request relating to apossible fraudulent accounting practice,we would ordinarily not expect to treatas voluntary for purposes of Rule 21F

78See Rule 21F6(b)(3).79See Report of Investigation Pursuant to Section

21(a) of the Securities Exchange Act of 1934 andCommission Statement on the Relationship ofCooperation to Agency Enforcement Decisions,Exchange Act Release No. 44969 (Oct. 23, 2001);U.S. Sentencing Guidelines 8C2.5.


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4(a) a subsequent whistleblowersubmission from the same individualthat describes additional instances ofthe same practice, or a different butrelated practice as part of an overallearnings manipulation scheme.80

However, the individual could stillmake a voluntary submission thatdescribed other, unrelated violations

(e.g., Foreign Corrupt Practices Actviolations).81

In further consideration of the viewsexpressed that our proposed rule wasoverly-broad, and could result inprecluding too many potentialwhistleblowers (e.g., in industry-wideinvestigations), we have decided not toadopt a rule that would treat a requestto an employer as directed as well to allemployees whose documents orinformation fall within the scope of therequest. (This provision was found inparagraph (2) of Proposed Rule 21F4(a), and is not part of final Rule 21F

4(a).)82

As a commenter stated,establishing this requirement as athreshold barrier to submissions couldeffectively shut down ourwhistleblower program because anyrelevant documents or informationwould almost certainly be covered by aneven marginally comprehensiveinvestigative request. 83 Thus, only arequest that is directed to the individualinvolved (or to his or her representative)will preclude that individual fromsubsequently making a voluntarysubmission of the requested informationor closely related information. We note,

however, that as part of ourdetermination of whether a submissionleads to a successful enforcement action

80This is a separate analysis from the question ofwhether information will be deemed to have ledto a successful Commission enforcement action. Asis discussed below, even after we have commencedan investigation or an examination, a whistleblowerwho voluntarily submits original information maybe eligible for an award if the informationsignificantly contributes to the success of ouraction. See Rule 21F4(c)(2).

81We have also added to paragraph (2) astatement that a whistleblowers submission ofinformation to the Commission will be consideredvoluntary if the whistleblower voluntarilyprovided the same information to one of the otherauthorities identified in the rule prior to receivinga request, inquiry, or demand from the Commission.This language is intended to respond to commentsthat, as proposed, our rule could have had theunintended consequence of precluding asubmission from being considered as voluntary incircumstances where the whistleblower providedthe information to another authority, the otherauthority referred the matter to the Commission,and our staff contacted the whistleblower before heor she had the opportunity to file a whistleblowersubmission with us. See letter from GrohovskyGroup.

82This would include requests that are directedto a specific office or function of an employer wherethe whistleblower works.

83See letter from DC Bar.

under Rule 21F4(c), we expect toevaluate whether a previous request tothe whistleblowers employer obtainedsubstantially the same information, orwould have obtained the information

but for any action of the whistleblowerin not providing the information to hisor her employer. In such circumstances,we ordinarily would not expect to treat

the whistleblowers submission ashaving significantly contributed to thesuccess of our action for purposes ofRule 21F4(c)(2).

We have also decided to revise ourproposed requirement that a submissionwill not be considered voluntary if thewhistleblower is under a pre-existinglegal or contractual duty to report theinformation to the Commission or to anyof the other authorities designated in therule. As adopted, Rule 21F4(a)(3)provides that a whistleblower cannotvoluntarily submit information if thewhistleblower is required to report his

or her original information to theCommission as a result of a pre-existinglegal duty,84 a contractual duty that isowed to the Commission or to one of theother authorities set forth in paragraph(1), or a duty that arises out of a judicialor administrative order.

Unlike in the proposed rule, the finalrule provides that a duty to reportinformation only to an authority otherthan the Commission does not result inexclusion of the whistleblower.85 Wehave narrowed the reach of thisprovision out of concern that, asproposed, it was potentially vague andoverbroad. Without a clearer and more

specific description of the types ofduties owed to these other authoritiesthat might preclude a submission, theproposed rule could have theunintended consequence ofdiscouraging some meritoriouswhistleblowers. In addition, we haveadopted exclusions for specific types ofindividuals based on the definition ofindependent knowledge under Rule21F4(b)(4). Consistent with ourapproach of applying potentialthreshold exclusions narrowly, weintend this exclusion to govern only in

84

Although in certain circumstances auditorshave pre-existing legal duties to report informationabout securities law violations to the Commission,for purposes of these rules, an auditors eligibilityfor a whistleblower award will not be addressedunder this rule, but will be addressed under Rules21F4(b)(4)(iii) and (v) and Rule 8(c)(4).

85As noted above, some commenters objected tothe proposed rule on the grounds that Congressexpressly only declared certain categories ofwhistleblowers to be ineligible as a result of theirpre-existing legal duties. However, Congress did notdefine the term voluntarily as used in Section21F, instead leaving it to the Commission tointerpret this term and others in a manner thatfurthers the statutory purposes. See Section 21F(j),15 U.S.C. 78u6(j).

cases where a whistleblower has anindividual duty to report to theCommission, and not in cases where theduty belongs to the whistleblowersemployer.

Although this determination ofvoluntariness turns on whether thewhistleblower is under a duty to reportinformation to the Commission, the

duty to report to the Commission canarise from a contract with either theCommission or with one of the otherauthorities identified in the rule. Thus,the rule would not consider asvoluntary disclosures made by anindividual who has entered into acooperation or similar agreement withanother authority, such as theDepartment of Justice, which requiresthe individual to cooperate with orprovide information to the Commission,or more generally to governmentagencies. Further, the requirement thatthe contractual duty be owed to the

Commission or to one of the otherauthorities means that whistleblowerswill not be precluded from awardeligibility if they are subject to acontractual duty to report information tothe Commission because of anagreement with a third party. In otherwords, submissions from suchwhistleblowers will be treated asvoluntary, assuming that the otherrequirements of this rule are satisfied.This clarification responds to theconcerns of some commenters thatemployers should not be able topreclude their employees from

whistleblower eligibility by generallyrequiring all employees to enter intoagreements that they will reportevidence of securities violations directlyto the Commission.86

The rule also provides that awhistleblower submission will not betreated as voluntary if thewhistleblower had a duty arising out ofa judicial or administrative order toreport the information to theCommission. This language coverspersons such as independent monitorsor consultants who may be appointed orretained as a result of Commission or

other proceedings with a requirementthat they report their findings,conclusions, or other information to theCommission.

Finally, this rule will not apply to anemployee or a third party who has aduty of some kind to report misconductto a company, as we believe that awholesale exclusion of whistleblowersubmissions in such cases would noteffectuate the purposes of Section 21F.

86See letters from Stuart D. Meissner and GeorgMerkl.


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2. Rule 21F4(b)Original Information

As proposed, Rule 21F4(b)(1) trackedthe definition oforiginal informationfound in Section 21F(a)(3) of theExchange Act, with the addedrequirement that the information must

be provided to the Commission for thefirst time after the date of enactment ofDodd-Frank. We are adopting the rule asproposed.

a. Proposed Rule

Our proposed rule defined originalinformation to mean information thatis: (i) Derived from the independentknowledge or independent analysis ofthe whistleblower; (ii) not alreadyknown to the Commission from anyother source, unless the whistlebloweris the original source of the information;(iii) not exclusively derived from anallegation made in a judicial oradministrative hearing, in agovernmental report, hearing, audit, or

investigation, or from the news media,unless the whistleblower is a source ofthe information; 87 and (iv) provided tothe Commission for the first time after

July 21, 2010 (the date of the enactmentof Dodd-Frank). The first threerequirements recited the definition oforiginal information found in Section21F(a)(3) of the Exchange Act. Thefourth requirement made clear thatawards would be considered only fororiginal information submitted after theenactment of Section 21F.

Some of the elements of thisdefinitionspecifically, independentknowledge, independent analysis, andoriginal sourceare defined in otherproposed rules, and are separatelydiscussed below.


Some commenters urged that ourdefinition oforiginal informationbe

broadened in various ways. Onecommenter suggested that originalinformation should includeinformation that was provided to the

87 In our Proposing Release we stated that we willinterpret the term judicial or administrativehearing to include hearings in arbitrationproceedings. See Proposing Release note 19. One

commenter expressed concern that thisinterpretation would prevent a plaintiff inarbitration from making a whistleblowersubmission on the basis of his allegations and theevidence adduced at the hearing. See letter fromStuart D. Meissner, LLC. However, in that instance,the plaintiff would qualify as the source of theallegations, and nothing in the definition oforiginal information would preclude the plaintifffrom using evidence adduced at the hearing tosupport his or her submission to the Commission.Rather, our inclusion of arbitration hearings withinthe scope of the rule would preclude others who areinvolved with the arbitrationsuch as the reporter,or an arbitratorfrom using the plaintiffsallegations to make a whistleblower submission fortheir own benefit.

Commission before the enactment ofDodd-Frank if the information leads toan enforcement action after the date ofenactment.88 Another commenteroffered that original informationshould include information anemployee reports to his or her companyand that is later reported to theCommission by the company.89

Similarly, another commenter expressedconcern that, because originalinformation must be information that isnot already known to the Commission,the definition appeared to excludesubsequent whistleblowers who provideadditional helpful information.90 Thiscommenter urged that we notautomatically exclude subsequentwhistleblowers, but instead make anappropriate award allocation among theindividuals involved.

Other commenters believed that ourdefinition oforiginal informationshould be narrowed to exclude certain

information from consideration for anaward. Two commenters suggested thatour rule exclude information beyond thestatute of limitations period for actionsto recover penalties.91 One of thesecommenters also urged that originalinformation should not includeinformation about a violation that hasalready been addressed by the entitythat is alleged to have violated thesecurities laws.92

Another commenter expressedconcern that, as proposed, originalinformation would not clearly excludeinformation a whistleblower receives asa result of an investigation by a

securities exchange or other self-regulatory organization, a foreignregulator, or information received inconnection with internal investigationsor civil or criminal proceedings.93 Thiscommenter urged that the rule bemodified to exclude informationderived from any investigative orenforcement activity or proceeding, andnot merely the types of proceedings setforth in the statute (i.e., an allegationmade in a judicial or administrativehearing, in a governmental report,hearing, audit, or investigation).

c. Final Rule

After considering the comments, weare adopting Rule 21F4(b)(1) asproposed. Congress enacted Section 21Fin order to provide new incentives forindividuals with knowledge ofsecurities violations to report those

88See letter from Bijan Amin; see also pre-proposal letter from James Hill.

89See letter from Hunton & Williams LLP.90See letter from DC Bar.91See letters from ICI and SIFMA.92See letter from ICI.93See letter from ABA.

violations to the Commission. Webelieve that applying Section 21Fprospectivelyfor new informationprovided to the Commission after thestatutes enactment and not toinformation previously submittedismost consistent with Congressionalintent and with the language of thestatute.94 Similarly, we do not believe

that it would be consistent withCongressional intent for our rules tocategorically exclude through thedefinition oforiginal information tipsabout violations that may arguably be

beyond an applicable statute oflimitations or that a company may haveaddressed through remedial action.Rather, considerations such as these are

better addressed through our exercise ofdiscretion in determining whether toopen an investigation, whether to bringan enforcement action, a

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