On September 23, 2020, the Securities and Exchange Commission adopted amendments to the rules governing the agency’s whistleblower program. The rule amendments became effective on December 7, 2020. The following are FAQs regarding the rule amendments. For more detailed information related to the rule amendments, see https://www.sec.gov/rules/final/2020/34-89963.pdf.
1. Am I protected against retaliation under the Dodd-Frank Act if I only report wrongdoing internally at my company?
No. Consistent with the Supreme Court’s ruling in Digital Realty Trust, Inc. v. Sommers, to be entitled to retaliation protection under the Dodd-Frank Act, an individual must report his or her information to the Commission and must do so in writing. Please visit the retaliation section of the Office’s website for more information on this important topic.
2. Is there a new presumption that a meritorious award recipient automatically receive a maximum award (30% of the monetary sanctions collected)?
Yes, in certain circumstances. Under new paragraph (c) of Rule 21F-6, the presumption is that the recipient should receive the maximum 30% award percentage when (1) the amount collected in the covered action and related action(s), in the aggregate, would yield a maximum award of $5 million or less; (2) there are no negative factors (unreasonable reporting delay, culpability, or interference with a company’s internal compliance processes or reporting program) and the claim does not trigger Rule 21F-16 (concerning culpable conduct). However, the presumption may be overcome if the whistleblower’s assistance was limited or “providing the enhancement would be inconsistent with the public interest, the promotion of investor protection, or the objectives of the whistleblower program.” For example, if the whistleblower engaged in securities law violations that were unrelated to conduct that formed the basis for the covered action, the Commission could in its discretion exclude the claimant from receiving the statutory maximum award.
3. What type of delay is “unreasonable” under the rules? Will I be unable to qualify for the statutory maximum award amount of 30 percent if the Commission determines I delayed reporting my information?
Whistleblowers are highly encouraged to report their information promptly to the SEC. OWB considers all relevant facts and circumstances related to the delay. In certain circumstances, OWB may recommend a proposed award amount at or near the statutory maximum even if a whistleblower delays in reporting where it is consistent with the public interest, the promotion of investor protection, and the objectives of the Commission’s Whistleblower Program. Examples of when a delay in reporting may warrant little or no reduction include when the whistleblower: (1) took a reasonable amount of time to engage in an internal reporting process or (2) spent a reasonable amount of time to ascertain relevant facts or to obtain an attorney. See OWB Guidance for Whistleblower Award Determination, at 3-4 (Sept. 23, 2020), for more information. It is important to describe any mitigating circumstance concerning a delay in reporting when you submit your claim for award. If you do not include such information, OWB may need to ascertain additional information from the whistleblower, which may cause a delay in the processing of the award claim.
4. If I am entitled to an award in connection with an SEC covered action, can I also receive a whistleblower award from the SEC on an action brought by one of the other designated entities based on my original information if that other entity has a whistleblower program?
It depends. If the entity has a whistleblower program that provides monetary awards, such as the IRS whistleblower program, then the SEC will not consider the entity’s action to be a related action unless the SEC finds that the SEC’s own whistleblower program has a more direct and relevant connection to the action. Another entity’s actions are not likely to qualify as related actions where they do not have a clear, explicit, and direct connection to conduct governed by the securities law. See Rule 21F-3(b).
5. Under the new interpretative guidance issued with the whistleblower rule amendments, can whistleblowers receive an award for providing independent analysis? What must a whistleblower’s submission provide to qualify as independent analysis?
Yes, a whistleblower who provides “independent analysis” may qualify for an award, if he or she also meets the other eligibility requirements for an award. In order for a submission to qualify as “independent analysis,” the whistleblower must do more than point to publicly available information. Information does not constitute independent analysis if the whistleblower merely directs the staff to publicly available information and states that the information itself suggests a fraud or other violations. For example, no independent analysis will be found where a whistleblower points to common hallmarks of fraud on the face of public materials (e.g., press releases that contain impossibly high, guaranteed investment returns or extravagant claims). Further, no independent analysis will be found where a whistleblower points to public discourse in which investors or others are alleging a fraudulent scheme (e.g., discussions on a public message board). Rather, the whistleblower must use the publicly available materials to show important insights about the possible securities laws violations that are not apparent from the face of the materials.
A whistleblower’s submission may be found to constitute independent analysis where the whistleblower applies technical expertise, such as detailed and highly sophisticated analysis, to publicly available information. However, technical expertise is not required. Non-experts may configure publicly available information in non-obvious ways that reveal patterns indicating possible violations that would not be otherwise inferable from the public information. Further, non-experts may engage in highly probative calculations or some other meaningful exercise with the information that may demonstrate the possibility of securities violations.
Further, a whistleblower may satisfy independent analysis where: the whistleblower’s conclusion of possible securities violations derives from multiple sources, including sources that, although publicly available, are not readily identified and accessed by a member of the public without specialized knowledge, unusual effort, or substantial cost; and these sources collectively raise a strong inference of a potential securities law violation that is not reasonably inferable by the Commission from any of the sources individually.
6. Does the definition of “monetary sanctions” in amended Rule 21F-4(e) extend to recoveries in bankruptcy proceedings?
No. The Commission is authorized only to pay whistleblower awards on the basis of monetary sanctions that are imposed in covered actions brought by the Commission or related actions brought by certain designated entities. Bankruptcy proceedings are not brought by either the Commission or the designated entities.
7. If the monetary relief ordered in a Commission action or related action is not expressly designated as “penalties, disgorgement, and interest,” can it still support a whistleblower award?
Yes, but only if the order to pay money constitutes relief for the violations that are the subject of the action. For example, restitution ordered in a criminal proceeding could support a related-action whistleblower award. Also, monies recovered by a receiver and returned to harmed investors may constitute monetary sanctions.
8. Will the Commission consider any other factors besides those listed in Rule 21F-6 in deciding the appropriate dollar amount or percentage for a meritorious award recipient?
No. The Commission’s determination is based exclusively on the application of the seven award factors listed in Rule 21F-6, except in the case of the presumption of a maximum 30% award where the aggregate amount collected would yield a maximum award of $5 million or less (see above). While the ultimate determination of an award amount is within the discretion of the Commission, the Commission may consider the factors, and only the factors set forth in Rule 21F-6, in relation to the facts and circumstances of each case in setting the dollar or percentage of the award.
9. If the Commission posts new forms on its website, such as a revised Form TCR or revised Form WB-APP, do I need to resubmit my TCR or WB-APP using the new forms?
No. Once a new form is posted, it will be available for whistleblowers who file new Form TCRs or award applications on Form WB-APP. All previously filed forms will remain in OWB’s files and records and do not need to be resubmitted. Further, there is a 30-day grace period for using the old forms. After the 30-day grace period, whistleblowers must use the new forms.
10. I submitted a tip to the Commission three years ago that I believe was important to an investigation. I just learned about the requirement that whistleblowers need to submit a Form TCR to be eligible for an award. I have never been represented by counsel. Is it too late for me to submit a Form TCR?
It is important that you submit a Form TCR as soon as possible after you learn about the requirement. Whistleblowers must submit the information on Form TCR either via mail or fax or through the Commission’s on-line Tips, Complaints and Referrals portal within 30 days after you first provide the Commission with original information. A whistleblower can qualify for a waiver from this requirement if the whistleblower files a Form TCR within 30 days of learning of the requirement and the Commission can readily determine that the whistleblower would unambiguously otherwise qualify for an award. Whistleblowers are on constructive notice of the TCR filing requirement if they are represented by counsel or, if, depending on the facts and circumstances, SEC staff advises a whistleblower to review the whistleblower website or otherwise obtain information about the whistleblower program.
11. After the 90-day deadline for submitting an award application on Form WB-APP, may I continue to submit additional materials that may be helpful to the award determination?
Once a Notice of Covered Action is published, a whistleblower has 90 days to submit a Form WB-APP and any documentation supporting an award to OWB. Rule 21F-12(a)(3) excludes untimely supplemental submissions from consideration by the Claims Review Staff and Commission.
This means that a whistleblower should submit during the 90-day window everything he or she believes is applicable to the Commission’s consideration of the award claim. If additional information is needed to process the claim, OWB will contact the whistleblower or his or her counsel if represented and request the additional information.
12. Can someone be permanently barred from participating in the whistleblower program?
Yes. Submissions or applications that are frivolous or fraudulent, or that would otherwise hinder the effective and efficient operation of the Whistleblower Program may result in the Commission issuing a permanent bar as part of a final order in the course of considering a whistleblower award application from you.
There are two instances where the Commission can bar an individual from participating in the whistleblower program. First, the Commission may permanently bar any applicant from participating in the program after the Commission determines that the applicant has submitted three or more award applications that are frivolous or lack a colorable connection between the tip and the actions for which the applicant is seeking an award. For the first three applications preliminarily deemed by the Office of the Whistleblower to be frivolous or noncolorable, the Office of the Whistleblower will advise a claimant of its assessment and give the claimant the opportunity to withdraw the application. After the first three applications, claimants will no longer have the opportunity to withdraw a frivolous or noncolorable award claim. If a claimant withdraws an application, it will not be considered in the bar process. However, a claimant may not withdraw an application after the 30-day period to withdraw has run, and a claimant cannot withdraw after a Preliminary Determination or Preliminary Summary Disposition has been issued.
Second, the Commission may also bar applicants who violate Rule 21F-8(c)(7), which generally concerns the submission of materially false, fictitious, or fraudulent statements in their whistleblower submission, in their other dealings with the Commission, or in related actions. See Rule 21F-8.
13. What is considered to be a “frivolous” award application under the new rules?
Frivolous claims are those that lack any reasonable or plausible connection to the covered or related action. The Office of the Whistleblower anticipates considering, for example, whether a claimant has provided any information related to the underlying action, or whether the claimant’s information is clearly not connected to the matter to which he or she is applying for an award.
14. Could you explain the new Preliminary Summary Disposition process, and how that differs from your current process?
The Preliminary Summary Disposition (“PSD”) process is a streamlined process to resolve denial claims that do not raise any novel or important legal or policy questions.
The PSD process applies to all claims for which the CRS has not yet issued a Preliminary Determination as of the effective date of the rules, as well as any future applications.
PSDs are issued by the Office of the Whistleblower, rather than the Claims Review Staff. Also, the time to respond to a PSD is shorter than the time to respond to a Preliminary Determination; under the PSD process a claimant has 15 days to request the staff declaration, and 30 days to submit a response objecting to the denial. See Rule 21F-18.
15. Are Commission settlement agreements eligible for awards?
Yes. OWB will post Notices of Covered Action for each prior Commission settlement agreement (agreements similar to Department of Justice non-prosecution or deferred prosecution agreements) ordering monetary sanctions exceeding $1 million. Individuals will then have 90 days after the notice is posted to submit a completed whistleblower award application (WB-APP) to OWB. See Rule 21F-10(b).
16. Do DOJ Deferred Prosecution Agreements and Non-Prosecution Agreements Qualify as Related Actions?
It depends. Under the whistleblower rule amendments, judicial and administrative actions brought by the authorities identified in Rule 21F-3(b), including DOJ Deferred Prosecution Agreements and Non-Prosecution Agreements, may be considered related actions eligible for related action awards if they are based upon the same information that the whistleblower voluntarily provided to the Commission and that led to the Covered Action. However, these kinds of agreements entered into by state agencies do not qualify as related actions. See Rule 21F-4(d).
17. When can individuals apply for awards based on a potential related Department of Justice Non-Prosecution Agreements or Deferred Prosecution Agreements?
Individuals must apply for an award based on a potential related DOJ Non-Prosecution Agreement or Deferred Prosecution Agreement within 90 days of the later of (1) December 7, 2020, which is the effective date of the amended whistleblower rules, (2) the date of the earliest public availability of the document reflecting the agreement through a press release or other dated publication, or (3) the date of the last signature on the document. See Rule 21F-11(b). Note that only individuals who are eligible for an award based on a successful Commission action are eligible for an award based on a related action, including a Non-Prosecution or Deferred Prosecution Agreement. See Rule 21F-11(a). Unlike settlement agreements entered into by the Commission, OWB does not post a Notice of Covered Action related to DOJ Non-Prosecution or Deferred Prosecution Agreements.
18. I see that the amended rules provide that individuals can apply for an award based on a Department of Justice Non-Prosecution Agreement or Deferred Prosecution Agreement within 90 days of the effective date of the rules. Does this apply to me?
Only individuals who have received an award in a Commission action are eligible for a related action award. See Rule 21F-11(a). If you have received an award in a Commission action, and believe that the original information you provided the Commission was also used by the DOJ in a Non-Prosecution or Deferred Prosecution Agreement, then you should apply for an award within 90 days of the effective date of the rules, that is, within 90 days of December 7, 2020. If you have an award application pending with the Commission, and you believe that your original information was also used by the DOJ in securing a related Non-Prosecution or Deferred Prosecution Agreement, then you should also apply within 90 days of the effective date of the rules. If you already have a pending award claim for a DOJ Non-Prosecution or Deferred Prosecution Agreement with the Office of the Whistleblower, you do not need to re-submit the award claim.
Modified: April 6, 2023