Federal Register, Volume 76 Issue 165 (Thursday, August 25, 2011)[Federal Register Volume 76, Number 165 (Thursday, August 25, 2011)]
[Rules and Regulations]
[Pages 53172-53222]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20423]
[[Page 53171]]
Vol. 76
Thursday,
No. 165
August 25, 2011
Part II
Commodity Futures Trading Commission
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17 CFR Parts 165
Whistleblower Incentives and Protection; Final Rule
Federal Register / Vol. 76 , No. 165 / Thursday, August 25, 2011 /
Rules and Regulations
[[Page 53172]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 165
RIN 3038-AD04
Whistleblower Incentives and Protection
AGENCY: Commodity Futures Trading Commission (``Commission'').
ACTION: Final rules.
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SUMMARY: The Commission is adopting Final Rules and new forms to
implement Section 23 of the Commodity Exchange Act (``CEA'' or ``Act'')
entitled ``Commodity Whistleblower Incentives and Protection.'' The
Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on
July 21, 2010 (``Dodd-Frank Act''), established a whistleblower program
that requires the Commission to pay an award, under regulations
prescribed by the Commission and subject to certain limitations, to
eligible whistleblowers who voluntarily provide the Commission with
original information about a violation of the CEA that leads to the
successful enforcement of a covered judicial or administrative action,
or a related action. The Dodd-Frank Act also prohibits retaliation by
employers against individuals who provide the Commission with
information about possible CEA violations.
DATES: Effective Date: These Final Rules will become effective upon
October 24, 2011.
FOR FURTHER INFORMATION CONTACT: Edward Riccobene, Chief, Policy and
Review, Division of Enforcement, 202-418-5327, [email protected],
Commodity Futures Trading Commission, Three Lafayette Centre, 1151 21st
Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION: The Commission is adopting Final Rules 165.1
through 165.19 and Appendix A, thereto, and new Forms TCR (``Tip,
Complaint or Referral'') and WB-APP (``Application for Award for
Original Information Provided Pursuant to Section 23 of the Commodity
Exchange Act''), under the CEA.
I. Background and Summary
Section 748 of the Dodd-Frank Act added new Section 23 to the
CEA,\1\ entitled ``Commodity Whistleblower Incentives and Protection.''
\2\ Section 23 directs that the Commission pay awards, subject to
certain limitations and conditions, to whistleblowers who voluntarily
provide the Commission with original information about a violation of
the CEA that leads to the successful enforcement of an action brought
by the Commission that results in monetary sanctions exceeding
$1,000,000, or the successful enforcement of a related action. Section
23 also provides for the protection of whistleblowers against
retaliation for reporting information to the Commission and assisting
the Commission in its related investigations and enforcement actions.
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\1\ 7 U.S.C. 1, et seq. (2006).
\2\ Public Law 111-203, Sec. 748, 124 Stat. 1739 (2010).
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On December 6, 2010, the Commission proposed Part 165 of the
Commission's Regulations to implement new Section 23 (``the Proposed
Rules'' or ``Proposing Release'').\3\ The rules contained in proposed
Part 165 defined certain terms critical to the operation of the
whistleblower program, outlined the procedures for applying for awards
and the Commission's procedures for making decisions on claims, and
generally explained the scope of the whistleblower program to the
public and to potential whistleblowers.
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\3\ Proposed Rules for Implementing the Whistleblower Provisions
of Section 23 of the Commodity Exchange Act, Release No. 3038-AD04,
75 FR 75728 (Dec. 6, 2010).
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The Final Rules include the specific procedures and forms that a
potential whistleblower must follow and file to make a claim. The Final
Rules also detail the standards that the Commission will use in
determining whether an award is appropriate and, if one is appropriate,
what the amount of an award should be. The Commission may exercise
discretion in granting an award based on the significance of the
information, degree of assistance provided in support of a covered
judicial or administrative action, programmatic interest,
considerations of public policy, and other criteria (other than the
balance of the Commodity Futures Trading Commission Customer Protection
Fund (``Fund'')). An award shall be denied to certain government
employees and others who, for certain stated reasons, are ineligible to
be whistleblowers.
The Final Rules also provide that a whistleblower may appeal to the
appropriate U.S. Circuit Court of Appeals the Commission's award
determination, including the determinations as to whom an award is
made, the amount of an award, and the denial of an award. Finally, the
Final Rules also provide guidance concerning anti-retaliation
provisions of the Dodd-Frank Act.
The Commission received more than 635 comment letters.\4\ Over 600
of these comments, sent by or on behalf of different individuals and
entities, were variations of the same form letter.\5\ The remaining 35
comments were submitted by individuals, whistleblower advocacy groups,
public companies, corporate compliance personnel, law firms and
individual lawyers, professional associations, and nonprofit
organizations. The comments addressed a wide range of issues, including
the interplay of the proposed Commission whistleblower program and
company internal compliance processes, the proposed exclusion from
award eligibility of certain categories of individuals or types of
information, the availability of awards to culpable whistleblowers, the
procedures for submitting information and making a claim for an award,
and the application of the statutory anti-retaliation provision.
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\4\ The public comments the Commission received are available at
http://comments.cftc.gov/PublicComments/CommentList.aspx?id=916.
\5\ The form letters provide no specific comments or requested
revisions regarding the Proposed Rules. These letters: express
concern that the ``corporate lobby will have undue influence on the
final rules to protect whistleblowers;'' allege that ``[t]he SEC
proposed rules completely undermine efforts to protect employees who
risk their careers to expose fraud;'' and opine that ``the CTFC
should not blindly follow any of the SEC's recommendations and
should instead write rules will encourage whistleblowers to report
commodities fraud.''
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As discussed in more detail below, the Commission has carefully
considered the comments received on the Proposed Rules in formulating
the Final Rules the Commission adopts today. The Commission has also
considered the Securities and Exchange Commission's (``SEC['s]'')
rulemaking to implement Section 922 of the Dodd-Frank Act, which
establishes whistleblower protections and incentives with respect to
violations of the securities laws.\6\ Where appropriate and consistent
with the underlying statutory mandate in Section 23 of the CEA, the
Commission has endeavored to harmonize its whistleblower rules with
those of the SEC. The Commission has made a number of revisions and
refinements to the Proposed Rules in
[[Page 53173]]
order to achieve the goals of the statutory whistleblower program and
advance effective enforcement of laws under the CEA. While the
revisions of each Proposed Rule are described in more detail throughout
this release, the four subjects highlighted below are among the most
significant.
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\6\ See Securities Whistleblower Incentives and Protections, 76
FR 34300 (June 13, 2011) (to be codified at 17 CFR 240.21F-1 to
240.21F-17). Commission staff has consulted with SEC staff regarding
drafting of rules to implement the Commission's and SEC's respective
Dodd-Frank Act whistleblower provisions, Section 748 (Commodity
Whistleblower Incentives and Protection) and Section 922
(Whistleblower Protection). To the extent that the Commission and
SEC reached the same conclusions on common issues, the Commission
endeavored harmonize its rule text with the SEC's final rule text.
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Internal Compliance: A significant issue discussed in the Proposed
Rules was the impact of the whistleblower program on company systems
for internal reporting of potential misconduct.\7\ The Commission did
not propose a requirement that a whistleblower must report his
information internally to an entity to be eligible for an award, and
commenters were sharply divided on the issues raised by this topic.
Upon consideration of the comments, the Commission has determined that
it is inappropriate to require whistleblowers to report violations
internally to be eligible for an award. The Commission does, however,
recognize that internal compliance and reporting systems ought to
contribute to the goal of detecting, deterring and preventing
misconduct, including CEA violations, and does not want to discourage
employees from using such systems when they are in place. Accordingly,
the Commission has tailored the Final Rules as follows:
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\7\ See 75 FR at 75730.
[cir] With respect to the criteria for determining the amount of
an award, the Final Rules provide that while the amount of an award
is within the Commission's discretion, the Commission will consider
(i) a whistleblower's report of information internally to an
entity's whistleblower, compliance or legal system as a factor that
potentially can increase the amount of an award; and (ii) a
whistleblower's interference with such internal systems is a factor
that can potentially decrease the amount of an award. Rule
165.9(b)(4), (c)(3).
[cir] A whistleblower may be eligible for an award for reporting
original information to an entity's internal compliance and
reporting systems if the entity later reports information to the
Commission that leads to a successful Commission action or related
action. Under this provision, all of the information provided by the
entity to the Commission will be attributed to the whistleblower,
which means the whistleblower will get credit--and potentially a
greater award--for any information provided by the entity to the
Commission in addition to the original information reported by the
whistleblower. Rule 165.2(i)(3).
Procedures for Submitting Information and Claims: The Proposed
Rules set forth a two-step process for submitting information,
requiring the submission of two different forms. In response to
comments that urged the Commission to streamline the procedures for
submitting information, the Commission has adopted a simpler process by
combining the two proposed forms into a single ``Form TCR'' to be
submitted by a whistleblower, under penalty of perjury. With respect to
the claims application process, the Commission has made one section of
that form optional to make the process less burdensome.
Aggregation of Smaller Actions to meet the $1,000,000 Threshold:
The Proposed Rules stated that awards would be available only when the
Commission has successfully brought a single judicial or administrative
action in which it obtained monetary sanctions of more than $1,000,000.
In response to comments, the Commission has provided in the Final Rules
that, for purposes of making an award, the Commission will aggregate
two or more smaller actions that arise from the same nucleus of
operative facts. This will make whistleblower awards available in more
cases.
Exclusions from Award Eligibility for Certain Persons and
Information: The Proposed Rules set forth a number of exclusions from
eligibility for certain categories of persons and information. In
response to comments suggesting that some of these exclusions were
overly broad or unclear, the Commission has revised a number of these
provisions. Most notably, the Final Rules provide greater clarity and
specificity about the scope of the exclusions applicable to senior
officials within an entity who learn information about misconduct in
connection with the entity's processes for identifying, reporting, and
addressing possible violations of law.
Internal Procedural and Organizational Issues: In the Proposing
Release, the Commission noted that it would address ``internal
procedural and organizational issues'' related to implementation of
Section 23 in a future rulemaking.\8\ The Final Rules include revisions
to reflect the Commission's intent to delegate to a Whistleblower
Office the authority to administer the Commission's whistleblower
program and to undertake and maintain customer education initiatives
through an Office of Consumer Outreach. The Final Rules also provide
that the Commission will exercise its authority to make whistleblower
award determinations through a delegation of authority to a panel that
shall be composed of representatives from three of the Commission's
Offices or Divisions.
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\8\ See 75 FR at 75728.
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II. Description of the Rules
A. Rule 165.1--General
Proposed Rule 165.1 provided a general, straightforward description
of Section 23 of the CEA, setting forth the purposes of the rules and
stating that the Commission administers the whistleblower program. In
addition, the Final Rule states that, unless expressly provided for in
the rules, no person is authorized to make any offer or promise, or
otherwise to bind the Commission, with respect to the payment of an
award or the amount thereof.
B. Rule 165.2--Definitions
1. Action
The term ``action'' is relevant for purposes of calculating whether
monetary sanctions in a Commission action exceed the $1,000,000
threshold required for an award payment pursuant to Section 23 of the
CEA, as well as determining the monetary sanctions on which awards are
based.\9\ Proposed Rule 165.2(a) defined the term ``action'' to mean a
single captioned judicial or administrative proceeding. The Commission
proposed to interpret the term ``action'' to include all claims against
all defendants or respondents that are brought within that proceeding
without regard to which specific defendants or respondents, or which
specific claims, were included in the action as a result of the
information that the whistleblower provided. With respect to the
definition of the term ``action,'' one commenter stated that only those
claims in multiple claim enforcement matters that result directly or
indirectly from the whistleblower's report should be included in an
``action'' for which a whistleblower is eligible for an award.\10\ The
commenter reasoned that the proposed definition would encourage the
reporting of ``fairly minor violations'' which could cause the
Commission to be ``inundated with far more complaints on insignificant
matters, thereby clogging a process that is already expected to be
cumbersome'' to the Commission.
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\9\ See Rule 165.8.
\10\ See letter from National Society of Compliance
Professionals (``NSCP'').
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The Commission has considered, but disagrees with the rationale in
support of these comments. In general, any violation, even those that
may appear relatively minor (e.g., failure to provide pool participants
with timely account statements in violation of Commission Regulation
4.22), may upon investigation be symptomatic of more significant
violations (e.g., CPO fraud in violation of Sections 4b and 4o of the
[[Page 53174]]
CEA). It would therefore not be in the public interest to discourage
the reporting of any violations. Further, to the extent that reporting
of relatively minor violations is a potential concern, the Final Rules
require that the whistleblower's information must have led to the
successful enforcement of a covered judicial or administrative action
(see Rules 165.2(e), (i), and 165.5(a)(3)). A minor violation by itself
is unlikely to result in an enforcement action resulting in monetary
sanctions exceeding $1,000,000.
The Commission is making a slight amendment to Rule 165.2(a) as
proposed. The Commission has discretion to bifurcate enforcement
actions (e.g., one action against the entity and another against
culpable individuals). Under the Proposed Rule, the bifurcation of a
single enforcement action with aggregate sanctions in an amount greater
than $1,000,000 could result in separate but related enforcement
actions in which one or more of such actions had sanctions of less than
$1,000,000. Under the Proposed Rule, therefore, the bifurcation of an
enforcement action into two or more related actions could result in a
reduced award for a whistleblower that provided the original
information leading to the enforcement actions, or no reward at all.
Consequently, the Commission is amending the definition of ``action''
in Rule 165.2(a) to include two or more proceedings that ``arise out of
the same nucleus of operative facts.'' \11\
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\11\ See SEC Rule 240.21F-4(d) (providing a similar definition
of ``action'').
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2. Aggregate Amount
Proposed Rule 165.2(b) defined the phrase ``aggregate amount'' to
mean the total amount of an award granted to one or more whistleblowers
pursuant to Proposed Rule 165.7 (Procedures for award applications and
Commission award determinations). The term is relevant for purposes of
determining the amount of an award pursuant to Proposed Rule 165.8
(``Amount of award;'' providing the Commission's parameters for
whistleblower awards). The Commission did not receive any comments on
the definition of aggregate amount. The Commission is adopting Rule
165.2(b) as proposed.
3. Analysis
Under Section 23(a)(4) of the CEA, the ``original information''
provided by a whistleblower may include information that is derived
from the ``independent knowledge'' or ``independent analysis'' of a
whistleblower. Proposed Rule 165.2(c) defined the term ``analysis'' to
mean the whistleblower's examination and evaluation of information that
may be generally available, but which reveals information that is not
generally known or available to the public. The Commission received no
comment on the definition of ``analysis.'' However, the Commission did
receive several comments on the definition of ``independent analysis,''
which are more fully discussed in section II.B.7.a below.
Because it received no comments to the contrary, the Commission is
adopting Rule 165.2(c) as proposed. This definition recognizes that
there are circumstances where individuals might review publicly
available information, and, through their additional evaluation and
analysis, provide vital assistance to the Commission staff in
understanding complex schemes and identifying potential violations of
the CEA.
4. Collected by the Commission
Proposed Rule 165.2(d) defined the phrase ``collected by the
Commission,'' when used in the context of deposits and credits into the
Fund, to refer to a monetary sanction that is both collected by the
Commission and confirmed by the U.S. Department of the Treasury.\12\
Section 23(g)(3) of the CEA provides that the Fund will be financed
through monetary sanctions ``collected by the Commission * * * that is
not otherwise distributed to victims of a violation of this Act or the
rules or regulations thereunder underlying such action,'' meaning that
deposits into the Fund are based only upon what the Commission actually
collects.\13\ The Commission generally collects civil monetary
sanctions and disgorgement amounts in civil actions, or fines in
administrative actions. A federal court or the Commission may award
restitution to victims in civil and administrative actions,
respectively, but the Commission does not ``collect'' restitution,
i.e., restitution is not recorded as a receivable on the Commission's
books and records. Consequently, restitution amounts collected in a
covered action or related action, in normal course, will not be
deposited into the Fund. The Commission did not receive comments
regarding the definition of ``collected by the Commission.'' The
Commission is therefore adopting Rule 165.2(d) as proposed.
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\12\ See discussion regarding the Fund below in section II.B.6.
\13\ See Section 23(g)(3) of the CEA, 7 U.S.C. 26(g)(3).
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5. Covered Judicial or Administrative Action
Proposed Rule 165.2(e) defined the phrase ``covered judicial or
administrative action'' to mean any judicial or administrative action
brought by the Commission under the CEA, the successful resolution of
which results in monetary sanctions exceeding $1,000,000. The
Commission did not receive any comments on ``covered judicial or
administrative action,'' and is adopting Rule 165.2(e) as proposed.
6. Fund
Proposed Rule 165.2(f) defined the term ``Fund'' to mean the
``Commodity Futures Trading Commission Customer Protection Fund''
established by Section 23(g) of the CEA. The Commission will use the
Fund to pay whistleblower awards as provided in Final Rule 165.12 and
to finance customer education initiatives designed to help customers
protect themselves against fraud and other violations of the CEA or the
Commission's Regulations. The Commission received no comments regarding
the definition of ``Fund.'' The Commission is adopting Rule 165.2(f) as
proposed.
7. Independent Knowledge and Independent Analysis
The phrases ``independent knowledge'' and ``independent analysis''
are relevant to the definition of ``original information'' in Proposed
Rule 165.2(k), which provides that ``original information'' may be
derived from the ``independent knowledge'' or ``independent analysis''
of a whistleblower. Commenters generally agreed with the Commission's
interpretation of independent knowledge and independent analysis.\14\
However, there were varied views as to what the Commission should or
should not exclude from independent knowledge and independent analysis.
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\14\ See letters from Securities Industry and Financial Markets
Association and Futures Industry Association (``SIFMA/FIA''),
American Institute of CPAs (``AICPA''), NSCP, American Bar
Association--Business Law Section/Committee on Derivatives and
Futures Law and the Committee on Federal Regulation of Securities
(``ABA'') and Edison Electric Institute and National Rural Electric
Cooperative Association (``EEI'').
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a. Independent Analysis
The Commission received one comment that addressed the definition
of ``independent analysis''--``the whistleblower's own analysis whether
done alone or in combination with others.'' The commenter stated that
the term ``independent analysis'' in Proposed Rule 165.2(h) should be
[[Page 53175]]
restricted to an analysis of the whistleblower's ``independent
knowledge'' along with other objective facts such as commodity price or
trading volume.\15\ The Commission has considered the comment in the
context of ``independent analysis'' and has decided to adopt Rule
165.2(h) as proposed. Section 23(a)(4) of the CEA specifically provides
that original information can be derived from either ``the independent
knowledge or analysis of a whistleblower.'' The Commission's Proposed
Rule adheres to this statutory limitation.
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\15\ See letter from ABA.
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b. Independent Knowledge
i. Proposed Rule
Proposed Rule 165.2(g) defined ``independent knowledge'' as factual
information in the whistleblower's possession that is not obtained from
publicly available sources, which would include such sources as
corporate filings, media, and the Internet. Importantly, the proposed
definition of ``independent knowledge'' did not require that a
whistleblower have direct, first-hand knowledge of potential
violations.\16\ Instead, independent knowledge may be obtained from any
of the whistleblower's experiences, observations, or communications
(subject to the exclusion for knowledge obtained from public sources).
Thus, for example, under Proposed Rule 165.2(g), a whistleblower would
have ``independent knowledge'' of information even if that knowledge
derives from facts or other information that has been conveyed to the
whistleblower by third parties.
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\16\ In addition, the distinction between ``independent
knowledge'' (as knowledge not dependent upon publicly available
sources) and direct, first-hand knowledge, is consistent with the
approach courts have typically taken in interpreting similar
terminology in the False Claims Act. Until this year, the ``public
disclosure bar'' provisions of the False Claims Act defined an
``original source'' of information, in part, as ``an individual who
[had] direct and independent knowledge of the allegations of the
information on which the allegations [were] based * * *.'' 31 U.S.C.
3730(e)(4) (prior to 2010 amendments). Courts interpreting these
terms generally defined ``independent knowledge'' to mean knowledge
that was not dependent on public disclosures, and ``direct
knowledge'' to mean first-hand knowledge from the relator's own work
and experience, with no intervening agency. E.g., United States ex
rel. Fried v. West Independent School District, 527 F.3d 439 (5th
Cir. 2008); United States ex rel. Paranich v. Sorgnard, 396 F.3d 326
(3d Cir. 2005). See generally John T. Boese, Civil False Claims and
Qui Tam Actions Sec. 4.02[D][2] (Aspen Publishers) (2006) (citing
cases). Earlier this year, Congress amended the ``public disclosure
bar'' to, among other things, remove the requirement that a relator
have ``direct knowledge'' of information. Sec. 10104(j)(2), Public
Law 111-148 124 Stat. 901 (Mar. 23, 2010).
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Proposed Rule 165.2(g) provided six circumstances in which an
individual would not be considered to have ``independent knowledge.''
The effect of those provisions would be to exclude individuals who
obtain information under those circumstances from being eligible for
whistleblower awards.
The first exclusion is for information generally available to the
public, including corporate filings and internet based information.
(Proposed Rule 165.2(g)(1).)
The second and third exclusions address information that was
obtained through a communication that is subject to the attorney-client
privilege. (Proposed Rule 165.2(g)(2) and (3).) The second exclusion
applies when a would-be whistleblower obtains the information in
question through privileged attorney-client communications. The third
exclusion applies when a would-be whistleblower obtains the information
in question as a result of his or his firm's legal representation of a
client. Neither the second nor the third exclusion would apply in
circumstances in which the disclosure of the information is authorized
by the applicable federal or state attorney conduct rules. These
authorized disclosures could include, for example, situations where the
privilege has been waived, or where the privilege is not applicable
because of a recognized exception such as the crime-fraud exception to
the attorney-client privilege.
In regard to both the second and third exclusions, compliance with
the CEA is promoted when individuals, corporate officers, Commission
registrants and others consult with counsel about potential violations,
and the attorney-client privilege furthers such consultation. This
important benefit could be undermined if the whistleblower award
program vitiated the public's perception of the scope of the attorney-
client privilege or created monetary incentives for counsel to disclose
information about potential CEA violations that they learned of through
privileged communications.
The fourth exclusion to ``independent knowledge'' in the Proposed
Rule applies when a person with legal, compliance, audit, supervisory,
or governance responsibilities for an entity receives information about
potential violations, and the information was communicated to the
person with the reasonable expectation that the person would take
appropriate steps to cause the entity to remedy the violation.\17\
(Proposed Rule 165.2(g)(4).) Accordingly, under the fourth exclusion,
officers, directors, and employees who learn of wrongdoing and are
expected as part of their official duties to address the violations
would not be permitted to use that knowledge to obtain a personal
benefit by becoming whistleblowers.
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\17\ This exclusion has been adapted from case law holding that
a disclosure to a supervisor who is in a position to remedy the
wrongdoing is a protected disclosure for purposes of the federal
Whistleblower Protection Act, 5 U.S.C. 2302(b)(8). E.g., Reid v.
Merit Systems Protection Board, 508 F.3d 674 (Fed. Cir. 2007);
Hooven-Lewis v. Caldera, 249 F.3d 259 (4th Cir. 2001).
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The fifth exclusion is closely related to the fourth, and applies
any other time that information is obtained from or through an entity's
legal, compliance, internal audit, or similar functions or processes
for identifying, reporting, and addressing potential non-compliance
with applicable law. (Proposed Rule 165.2(g)(5).)
Compliance with the CEA is promoted when companies implement
effective legal, internal audit, compliance, and similar functions.
Thus, Section 23 should not create incentives for persons involved in
such roles, as well as other similarly positioned persons who learn of
wrongdoing at a company, to circumvent or undermine the proper
operation of an entity's internal processes for investigating and
responding to violations of law. However, both of these exclusions
cease to be applicable if the entity fails to disclose the information
to the Commission within sixty (60) days of when it becomes aware of
the violation or otherwise proceeds in bad faith, with the result that
an individual may be deemed to have ``independent knowledge,'' and,
therefore, depending on the other relevant factors, may qualify for a
whistleblower award. The rationale for this provision is that if the
entity fails to report information concerning the violation to the
Commission within that time frame, it would be inconsistent with the
purposes of Section 23 to deter individuals with knowledge of the
potential violations from coming forward and providing the information
to the Commission. Furthermore, this provision provides a reasonable
period of time for entities to report potential violations, thereby
minimizing the potential of circumventing or undermining existing
compliance programs.
The sixth and final exclusion to ``independent knowledge'' in the
Proposed Rule applies if the would-be whistleblower obtains the
information by means or in a manner that violates
[[Page 53176]]
applicable federal or state criminal law. (Section 165.2(g)(6).) This
exclusion is necessary to avoid the unintended effect of incentivizing
criminal misconduct.
ii. Comments and Final Rule
Rule 165.2(g)(1)--Exception Concerning Public Sources
The Commission received comments from two commenters regarding the
public source exception to ``independent knowledge.'' One commenter
suggested that the public source exception (Section 165.2(g)(1)) is too
broad and suggested that the Commission should restrict the definition
of ``independent knowledge'' to first-hand knowledge. The commenter's
rationale was that such a restriction would be premised on the notion
that oral information obtained from third parties is unreliable because
it may be insincere or subject to flaws in memory or perception. This
commenter also suggested that the public source exception incentivizes
whistleblower reports based on rumors or ill-informed sources.\18\
Taking a contrary position, another commenter recommended that an
``independent analysis'' be allowed to draw on previously published
sources.\19\ One commenter suggested that ``independent analysis''
should be restricted to an analysis of the whistleblower's own
``independent knowledge'' along with other objective facts like
commodity price or trading volume.\20\
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\18\ See letter from ABA.
\19\ See letter from Project on Government Oversight (``POGO'')
at 5-6 (noting the Bernard Madoff whistleblower, Harry Markopolos,
as an example of whistleblowers who ``perform original analysis
based on publicly available sources.'').
\20\ See letter from ABA.
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After considering comments received, the Commission has decided to
adopt Rule 165.2(g)(1) as proposed.
Rule 165.2(g)(2)--Exception Concerning Attorney-Client Privilege and
Rule 165.2(g)(3)--Outside Counsel
One commenter asked the Commission to clarify that all of the
exceptions contained in Proposed Rules 165.2(g)(2) and (3) continue to
apply after an individual has resigned from his or her law firm, that
the provisions apply equally to in-house and outside counsel; and that
the rules treat the duties of lawyers differently from those of non-
lawyer experts, such as paralegals and others who work under the
direction of lawyers.\21\ This commenter noted that lawyers gain
knowledge about an entity that is protected by the attorney-client
privilege and the work product doctrine,\22\ which the lawyers are not
permitted to waive, and that lawyers have state-law ethical obligations
to maintain client confidentiality that extend beyond privileged
information. The commenter reasoned that if the Commission does not
specify that the exceptions in Rules 165.2(g)(2) and (3) continue after
a lawyer has left his or her firm, the lawyer is incentivized to quit.
Another commenter recommended that Rule 165.2(g)(2) be amended to
explicitly apply to both attorneys and clients.\23\ Similarly, another
commenter suggested that the definitions of ``independent knowledge''
and ``independent analysis'' should exclude information obtained
through a communication that is protected by the attorney-client
privilege.\24\ The same commenter recommended that the exclusions for
information obtained by a person with legal, compliance, audit,
supervisory, or governance responsibilities should apply to any
information obtained by such persons and not be limited to information
being communicated ``with a reasonable expectation that the [recipient]
would take appropriate steps to cause the entity to remedy the
violation. * * *'' \25\
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\21\ See letter from SIFMA/FIA.
\22\ See letter from ABA.
\23\ See letter from The Financial Services Roundtable
(``FSR'').
\24\ See letter from NSCP.
\25\ Id.
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After considering comments received, the Commission has decided to
adopt Rule 165.2(g)(2) as proposed and Rule 165.2(g)(3) with some
modifications. The Commission has changed ``[A]s a result of the legal
representation of a client on whose behalf the whistleblower's
services, or the services of the whistleblower's employer or firm, have
been retained * * *'' to ``[I]n connection with the legal
representation of a client on whose behalf the whistleblower, or the
whistleblower's employer or firm, have been providing services. * * *''
\26\ The Commission believes that these changes will prevent the use of
confidential information not only by attorneys, but by secretaries,
paralegals, consultants and others who work under the direction of
attorneys and who may have access to confidential client information.
---------------------------------------------------------------------------
\26\ See Rule 165.2(g)(3).
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Rule 165.2(g)(4), (5)--Exception Concerning Internal Legal, Compliance,
Audit, and Supervisory Responsibilities
Several commenters sought to expand the exclusions in Proposed Rule
165.2(g)(4). One commenter suggested that the exclusions for
information obtained by a person with legal, compliance, audit,
supervisory, or governance responsibilities should apply to any
information obtained by such persons, and not be limited to information
that was communicated to the recipient ``with a reasonable expectation
that the [recipient] would take appropriate steps to cause the entity
to remedy the violation * * *.'' \27\ Two other commenters said that
the 60-day deadline for an entity to report information to the
Commission, which if missed allows a whistleblower in this category to
avoid the exclusions under Proposed Rules 165.2(g)(4) and (5), did not
give the entity enough time to report. One suggested the deadline
should be a `reasonable time',\28\, and the other suggested that
whistleblowers in this category should have to wait until an entity's
internal investigation is completed before reporting to the
Commission.\29\ Another commenter requested that the exclusion apply to
external auditors (accounting firms) who obtain information about an
entity while performing a CEA-required engagement and that the
exclusion applies to any engagement performed for an entity subject to
the jurisdiction of the Commission whether or not the engagement is an
audit.\30\ A commenter also suggested that lawyers should not be
subject to the ``good faith'' or ``prompt reporting'' exceptions in
Proposed Rule 165.2(g)(4), and that the reference to lawyers in
Proposed Rule165.2(g)(4) should therefore be deleted and treated
separately in Proposed Rules 165.2(g)(2) and (3).\31\
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\27\ See letter from ABA.
\28\ See letter from NSCP, ``as long as the firm is moving
toward appropriate resolution in light of the totality of the
circumstances, a subjective definition of `reasonable time' is
appropriate.''
\29\ See letter from EEI.
\30\ See letter from AICPA.
\31\ See letter from SIFMA/FIA.
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The Commission also received a comment that stated that the
exception should be broadened to include internal control functions
more generally, including risk management, product management and
personnel functions. This commenter reasoned that all internal control
functions should be treated equally because all internal control
functions play an important role in maintaining an entity's control
environment.\32\
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\32\ See letter from SIFMA/FIA. The Commission does not agree
with this commenter. To exclude all persons somehow involved in an
undefined ``internal control'' function would create too broad an
exclusion, thereby making an unnecessarily large number of employees
ineligible to be whistleblowers. It was not the intent of Section 23
to unreasonably limit the potential pool of whistleblowers.
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The Commission has considered the comments received and revised the
rule
[[Page 53177]]
such that those recommendations that have been accepted, in whole or in
part, are now reflected in Rule 165.2(g)(4), (5). The recommended
exclusions have been revised and focused to promote the goal of
ensuring that the persons most responsible for an entity's conduct and
compliance with law are not incentivized to promote their own self-
interest at the possible expense of the entity's ability to detect,
address, and self-report violations. Further, pursuant to the rules as
adopted, such individuals would be permitted to become whistleblowers
under certain circumstances, including when the whistleblower has a
``reasonable basis to believe'' that: (1) Reporting to the Commission
is necessary to prevent conduct likely to cause substantial injury; (2)
the entity is engaging in conduct that will impede an investigation of
the misconduct; or (3) at least 120 days have elapsed since the
whistleblower reported the information internally.\33\
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\33\ See Rule 165.2(g)(7).
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The Commission declined to revise the rule to extend the exclusion
to an employee of a public accounting firm. While the SEC includes such
an exclusion in its rules,\34\ the SEC's Dodd-Frank Act whistleblower
provisions specifically requires this exclusion \35\ and external
auditors are under an existing obligation to report violations to the
SEC under the Securities Exchange Act of 1934.\36\ Neither the
Commission's Dodd-Frank Act whistleblower provisions nor the CEA have
similar exclusions or requirements.
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\34\ See SEC Rule 240.21F-4(b)(4)(iii)(D).
\35\ See 15 U.S.C. 78u-6(c)(2)(C).
\36\ See 15 U.S.C. 78j-1(b)(3); see also SEC Rule 240.10A-1.
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Rule 165.2(g)(6)--Exception Concerning Information Obtained in
Violation of Law
Commenters support the notion that a whistleblower who reports
information he obtained in violation of the law should be ineligible
for an award.\37\ One commenter, however, recommended that an award
exclusion should be limited.\38\ This commenter reasoned that Rule
165.2(g)(6), as proposed, would have the effect of making the
Commission ``responsible for adjudicating--without any real due process
afforded to the whistleblower--whether or not evidence-gathering
techniques violated a law, and if so, whether or not the whistleblower
was in fact guilty of violating said law (i.e. whether the state could
prove, beyond [a] reasonable doubt, that the employee in fact violated
each and every element of the criminal claim).'' In addition, this
commenter suggested that the Commission should revise the rule to more
closely reflect the underlying statutory language. Another commenter
proposed that the exclusion for information obtained in violation of
the law should be extended to civil violations of laws or rules, and
violations of a self-regulatory organization (``SRO'') rules.\39\
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\37\ See letter from SIFMA/FIA (``The rules should also not
allow for an award based on information provided in violations of
judicial or administrative orders.'').
\38\ See letter from Taxpayers Against Fraud (``TAF'').
\39\ See letter from SIFMA/FIA.
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After considering the comments on Proposed Rule 165.2(g)(6), the
Commission has decided to adopt the rule, as proposed, with one
modification. Under the Final Rule, Rule 165.2(g)(5), whether a
criminal violation occurred for purposes of the exclusion is now
subject to the determination of a United States court. This revision is
consistent with Section 23(c)(2) of the CEA, which renders ineligible
``any whistleblower who is convicted of a criminal violation related to
the judicial or administrative action for which the whistleblower
otherwise could receive'' a whistleblower award. Expanding this
exclusion beyond criminal violations and without the requirement for a
United States court determination would be inconsistent with the
statute and discourage whistleblowers through the creation of legal
uncertainty.
8. Information That Led to Successful Enforcement Action
a. Proposed Rule
As proposed, Rule 165.2(i) explained when the Commission would
consider original information to have led to a successful enforcement
action. The Proposed Rule distinguished between information regarding
conduct not previously under investigation or examination and
information regarding conduct already under investigation or
examination.
For information regarding conduct not previously under
investigation or examination, the Proposed Rule established a two-part
test for determining whether the information led to successful
enforcement. First, the information must have caused the Commission
staff to commence an investigation or examination, reopen an
investigation that had been closed, or to inquire into new and
different conduct as part of an existing examination or investigation.
Second, the information must have ``significantly contributed'' to the
success of an enforcement action filed by the Commission.
For information regarding conduct already under investigation or
examination, the Proposed Rule established a higher hurdle. To
establish that information led to a successful enforcement action, a
whistleblower would need to demonstrate that the information: (1) Would
not have otherwise been obtained; and (2) was essential to the success
of the action.
b. Comments
The Commission received two comments regarding Proposed Rule
165.2(i). Both commenters suggested revising Proposed Rule 165.2(i) to
lower the hurdles to proving that a whistleblower's information led to
a successful enforcement action.\40\ One commenter opined that the
Commission imposes additional, non-statutory hurdles to the meaning of
``led to the successful enforcement.'' This commenter also asserted
that the ``significantly contributed to the success of the action''
element of the definition improperly broadens the Commission's
discretion to deny awards beyond congressional intent and suggested
that the ``significantly contributed'' element be stricken from the
rule.\41\
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\40\ See letters from The National Whistleblowers Center
(``NWC'') and TAF.
\41\ See letter from TAF.
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c. Final Rule
The Commission has considered the comments received regarding the
definition of ``information that led to successful enforcement'' and
has decided to adopt Rule 165.2(i) with some changes. Although the
Commission has retained the ``significantly contributed'' element of
the rule, the Commission has added alternative standards to evaluate
whether a whistleblower has provided original information that led to a
successful enforcement action. The Commission continues to believe that
it is not the intent of Section 23 to authorize whistleblower awards
for any and all tips. Instead, implicit in the requirement contained in
Section 23(b) that a whistleblower's information ``led to successful
enforcement'' is the additional expectation that the information,
because of its high quality, reliability, and specificity, has a
meaningful nexus to the Commission's ability to successfully complete
its investigation, and to either obtain a settlement or prevail in a
litigated proceeding.
[[Page 53178]]
In addition, to further incentivize internal reporting of
violations, the Commission has added a new paragraph (3) to this rule,
which states that original information reported through an entity's
internal processes that leads to a successful enforcement action will
be treated as information provided by the whistleblower instead of
provided by the entity.\42\
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\42\ The SEC final rules take a similar approach to their
comparable definitional provision. See SEC Rule 240.21F-4(c)
(``information that leads to successful enforcement'').
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9. Monetary Sanctions
Proposed Rule 165.2(j) defined the phrase ``monetary sanctions''
when used with respect to any judicial or administrative action, or
related action, to mean: (1) Any monies, including penalties,
disgorgement, restitution and interest ordered to be paid; and (2) any
monies deposited into a disgorgement fund or other fund pursuant to
section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)),
as a result of such action or any settlement of such action. This
phrase is relevant to the definition of a ``covered judicial or
administrative action'' in Proposed Rule 165.2(e) and to the amount of
a whistleblower award under Proposed Rule 165.8. The Commission
received no comments on the definition of ``monetary sanctions.'' The
Commission is adopting the rule as proposed.
10. Original Information and Original Source
a. Proposed Rules
Proposed Rule 165.2(k) tracked the definition of ``original
information'' set forth in Section 23(a)(4) of the CEA.\43\ ``Original
information'' means information that is derived from the
whistleblower's independent knowledge or analysis; is not already known
to the Commission from any other source, unless the whistleblower is
the original source of the information; and is not exclusively derived
from an allegation made in a judicial or administrative hearing, in a
governmental report, hearing, audit, or investigation, or from the news
media, unless the whistleblower is a source of the information.
Consistent with Section 23(l) of the CEA, the Dodd-Frank Act authorizes
the Commission to pay whistleblower awards on the basis of original
information that is submitted prior to the effective date of the Final
Rules implementing Section 23 (assuming that all of the other
requirements for an award are met). The Dodd-Frank Act does not
authorize the Commission to apply Section 23 retroactively to pay
awards based upon information submitted prior to the enactment date of
the statute.\44\ Consistent with Congress's intent, Proposed Rule
165.2(k)(4) also required that ``original information'' be provided to
the Commission for the first time after July 21, 2010 (the date of
enactment of the Dodd-Frank Act).
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\43\ 7 U.S.C. 26(a)(4).
\44\ Section 23(k) of the CEA directs that: ``Information
submitted to the Commission by a whistleblower in accordance with
rules or regulations implementing this section shall not lose its
status as original information solely because the whistleblower
submitted such information prior to the effective date of such rules
or regulations, provided that such information was submitted after
the date of enactment of the [Dodd-Frank Act].''
---------------------------------------------------------------------------
Proposed Rule 165.2(l) defined the term ``original source,'' a term
found in the definition of ``original information.'' Under the Proposed
Rule, a whistleblower is an ``original source'' of the same information
that the Commission obtains from another source if the other source
obtained the information from the whistleblower or his representative.
The whistleblower bears the burden of establishing that he is the
original source of information.
In Commission investigations, a whistleblower would be an original
source if he first provided information to another authority, such as
the Department of Justice, an SRO, or another organization that is
identified in the Proposed Rule, which then referred the information to
the Commission. In these circumstances, the Proposed Rule would credit
a whistleblower as being the ``original source'' of information on
which the referral was based as long as the whistleblower
``voluntarily'' provided the information to the other authority within
the meaning of these rules (i.e., the whistleblower or his
representative must have come forward and given the other authority the
information before receiving any request, inquiry, or demand to which
the information was relevant, or was the individual who originally
possessed either the independent knowledge or conducted the independent
analysis). Similarly, a whistleblower would not lose original source
status solely because he shared his information with another person who
filed a whistleblower claim with the Commission prior to the original
source filing a claim for whistleblower status, as long as the other
applicable factors are satisfied.
Proposed Rule 165.3 (``Procedures for submitting original
information'') required a whistleblower to submit two forms, a Form TCR
(``Tip, Complaint or Referral'') and a Form WB-APP (``Application for
Award for Original Information Provided Pursuant to Section 23 of the
Commodity Exchange Act''), which included the ``Declaration Concerning
Original Information Provided Pursuant to Section 23 of the Commodity
Exchange Act'' in order to start the process and establish the
whistleblower's eligibility for award consideration.\45\ A
whistleblower who either provides information to another authority
first, or who shares his independent knowledge or analysis with another
who is also claiming to be a whistleblower, would have followed these
same procedures and submitted the necessary forms to the Commission in
order to perfect his status as a whistleblower under the Commission's
whistleblower program. However, under Proposed Rule 165.2(l)(2), the
whistleblower must have submitted the necessary forms to the Commission
within 90 days after he provided the information to the other
authority, or 90 days after the other person claiming to be a
whistleblower submitted his claim to the Commission.
---------------------------------------------------------------------------
\45\ See Rule 165.3.
---------------------------------------------------------------------------
As noted above, the whistleblower must establish that he is the
original source of the information provided to the other authority as
well as the date of his submission, but the Commission may seek
confirmation from the other authority, or any other source, in making
this determination. The objective of this procedure is to provide
further incentive for persons with knowledge of CEA violations to come
forward (consistent with the purposes of Section 23) by assuring
potential whistleblowers that they can provide information to
appropriate Government or regulatory authorities, and their ``place in
line'' will be protected in the event that other whistleblowers later
provide the same information directly to the Commission.
For similar reasons, the Proposed Rule extended the same protection
to whistleblowers who provide information about potential violations to
the persons specified in Proposed Rule 165.2(g)(3) and (4) (i.e.,
personnel involved in legal, compliance, audit, supervisory and similar
functions, or who were informed about potential violations with the
expectation that they would take steps to address them), and who,
within 90 days, submit the necessary whistleblower forms to the
Commission. Compliance with the CEA is promoted when entities have
effective programs for identifying, correcting, and self-reporting
unlawful conduct by their officers or employees. The objective of this
provision is to support, not
[[Page 53179]]
undermine, the effective functioning of entity compliance and related
systems by allowing employees to take their concerns about potential
violations to appropriate entity officials while still preserving their
rights under the Commission's whistleblower program.
Proposed Rule 165.2(l)(3) addressed circumstances where the
Commission already possesses some information about a matter at the
time that a whistleblower provides additional information about the
same matter. The whistleblower will be considered the ``original
source'' of any information that is derived from his independent
knowledge or independent analysis, and that materially adds to the
information that the Commission already possesses. The standard is
modeled on the definition of ``original source'' that Congress included
in the False Claims Act through amendments.\46\
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\46\ 31 U.S.C. 3730(e)(4)(B), Public Law 111-148 Sec.
10104(j)(2), 124 Stat. 901 (Mar. 23. 2010).
---------------------------------------------------------------------------
b. Comments
The Commission received three comments regarding the definition of
``original information'' in Proposed Rule 165.2(k). One commenter
believes that the enumerated exclusions from the definition of
``original information'' are not sufficiently broad. As an example,
this commenter posits that the definition would not clearly exclude
information a whistleblower receives as a result of an investigation by
an exchange, SRO, or a foreign regulator, or information received in
connection with internal investigations or civil or criminal
proceedings in which the information has already been made known to the
entity. Therefore, this commenter suggests broadly excluding from the
definition all information deriving from an allegation made in any
investigative or enforcement activity or proceeding, and all
information elicited during, or deriving from, any such proceeding or
other matter.\47\
---------------------------------------------------------------------------
\47\ See letter from ABA.
---------------------------------------------------------------------------
Another commenter had two concerns about the definition. The first
concern was that a whistleblower could be rewarded for reporting
something that an entity has already corrected. Therefore, the
commenter proposed that for information to be considered original
information, it should be ``information relating to a violation that
has not been addressed by the entity that is alleged to have violated
the CEA.'' The other concern was that the Proposed Rules do not
specifically address original information involving violations that are
time-barred by the applicable statute of limitations, or situations in
which there is uncertainty regarding the applicable statute of
limitations.\48\
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\48\ See letter from Investment Company Institute (``ICI'').
---------------------------------------------------------------------------
Another commenter focused on the definition of ``original source''
and suggested that it often takes longer than 90 days for a
whistleblower to realize that an entity intends to ignore the
whistleblower's efforts to report under an internal compliance program.
Therefore that commenter posited that the time for a whistleblower to
report internally should be extended.\49\
---------------------------------------------------------------------------
\49\ See letter from TAF.
---------------------------------------------------------------------------
c. Final Rules
The Commission has considered the comments received regarding the
definition of ``original information'' and has decided to adopt Rule
165.2(k) as proposed. The Commission does not agree with the commenter
who suggested that it would be improper for a whistleblower to receive
an award for a violation that an entity has corrected. A whistleblower
is entitled to an award of not less than 10 percent and not more than
30 percent of monetary sanctions collected, regardless of whether the
violation was self-corrected. In addition, the Commission does not
believe it is necessary or appropriate to limit the definition of
original information based upon the age of the information.
The Commission has considered the comments received regarding
``original source'' and has decided to adopt Rule 165.2(l) with a
change. The change is that the Commission has extended the time that an
otherwise excluded whistleblower has to report information to the
Commission after he reported to an entity that did not self report.
Paragraph (2) of Rule 165.2(l) now gives such whistleblower 120 days
instead of 90 days to regain ``original source'' status, which will
provide whistleblowers with additional time to recognize whether an
entity has reported the violation to the Commission.
The Commission believes that several provisions in the Final Rules
will ordinarily operate to exclude whistleblowers whose only source of
original information is an existing investigation or proceeding.
Information that is exclusively derived from a governmental
investigation is expressly excluded from the definition of ``original
information'' under Rule 165.2(k)(3). A whistleblower who learns about
possible violations only through a company's internal investigation
will ordinarily be excluded from claiming ``independent knowledge'' by
operation of either the exclusions from ``independent knowledge'' set
forth in Rule 165.2(g)(2), (3), (4), (5) (relating to attorneys and
other persons who may be involved in the conduct of internal
investigations). To the extent that information about an investigation
or proceeding is publicly available, it is excluded from consideration
as ``independent knowledge'' under Rule 165.2(g)(1).
11. Related Action
The phrase ``related action'' in Proposed Rule 165.2(m), when used
with respect to any judicial or administrative action brought by the
Commission under the CEA, means any judicial or administrative action
brought by an entity listed in Proposed Rule 165.11(a) (i.e., the
Department of Justice, an appropriate department/agency of the Federal
Government, a registered entity, registered futures association or SRO,
or a State criminal or appropriate civil agency) that is based upon the
original information voluntarily submitted by a whistleblower to the
Commission pursuant to Proposed Rule 165.3 that led to the successful
resolution of the Commission action. This phrase is relevant to the
Commission's determination of the amount of a whistleblower award under
Proposed Rules 165.8 and 165.11. The Commission received one comment
regarding ``related action.'' The commenter expressed concern that a
whistleblower could potentially receive an award from both the
Commission and the SEC by providing the same information to each
agency. This same commenter noted that the SEC will not make an award
for a related action and these rules should contain similar
provisions.\50\ After consideration of the comment, the Commission has
decided to adopt the rule as proposed. There are statutory differences
between Section 23(h)(2)(C) of the CEA and Section 21F(h)(2)(D)(i) of
the Securities Exchange Act of 1934 that prevent complete harmonization
between the two agencies with regard to the term ``related action.''
For example, the list entities whose actions can qualify as ``related
actions'' do not match under the Commission and SEC Dodd-Frank Act
provisions. Compare 7 U.S.C. 26(a)(5) (designating the Department of
Justice, an appropriate department/agency of the Federal Government, a
registered entity, registered futures association or SRO, a State
criminal or appropriate civil agency, and a foreign futures authority);
with 15 U.S.C. 78u-6(a)(5) (designating) the Attorney General of the
United States, an
[[Page 53180]]
appropriate regulatory agency, an SRO, or a state attorney general in a
criminal case).
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\50\ See letter from FSR.
---------------------------------------------------------------------------
12. Successful Resolution or Successful Enforcement
Proposed Rule 165.2(n) defined the phrase ``successful
resolution,'' when used with respect to any judicial or administrative
action brought by the Commission under the CEA, to include any
settlement of such action or final judgment in favor of the Commission.
The phrase shall also have the same meaning as ``successful
enforcement.'' This phrase is relevant to the definition of the term
``covered judicial or administrative action'' as set forth in Rule
165.2(e). The Commission received no comments on the term ``successful
resolution'' or ``successful enforcement'' and is adopting the rule as
proposed.
13. Voluntary Submission or Voluntarily Submitted
a. Proposed Rule
Under Section 23(b)(1) of the CEA,\51\ whistleblowers are eligible
for awards only when they ``voluntarily'' provide original information
about CEA violations to the Commission. Proposed Rule 165.2(o) defined
a submission as made ``voluntarily'' if a whistleblower provided the
Commission with information before receiving any request, inquiry, or
demand from the Commission, Congress, any other federal, state or local
authority, the Department of Justice, a registered entity, a registered
futures association or any SRO about a matter to which the information
in the whistleblower's submission was relevant. The Proposed Rule
covered both formal and informal requests. Thus, under the Proposed
Rule, a whistleblower's submission would not be considered
``voluntary'' if the whistleblower was contacted by the Commission or
one of the other authorities first, whether or not the whistleblower's
response was compelled by subpoena or other applicable law.
---------------------------------------------------------------------------
\51\ 7 U.S.C. 26(b)(1).
---------------------------------------------------------------------------
As the Commission's Proposing Release explained, this approach was
intended to create a strong incentive for whistleblowers to come
forward early with information about possible violations of the CEA,
rather than wait to be approached by investigators. For the same
reasons, Proposed Rule 165.2(o) provided that a whistleblower's
submission of documents or information would not be deemed
``voluntary'' if the documents or information were within the scope of
a prior request, inquiry, or demand to the whistleblower's employer,
unless the employer failed to make production to the requesting
authority in a timely manner.
Proposed Rule 165.2(o) also provided that a submission would not be
considered ``voluntary'' if the whistleblower was under a pre-existing
legal or contractual duty to report the violations of the CEA to the
Commission or to one of the other designated authorities.
b. Comments
Commenters had diverse perspectives on the Commission's proposal to
require that whistleblowers come forward before they receive either a
formal or informal request or demand from the Commission, or one of the
other designated authorities, about any matter relevant to their
submission. Some commenters asserted that the Commission's Proposed
Rule was too restrictive. For example, one commenter urged that all
information provided by a whistleblower should be treated as
``voluntary'' until the whistleblower is testifying under compulsion of
a subpoena.\52\ Another commenter expressed concern that the
Commission's Proposed Rule could have the effect of barring
whistleblowers in cases in which a whistleblower's information is
arguably ``relevant'' to a general informational request from an
authority, even though the authority is not pursuing the issue that the
whistleblower might report.\53\ This commenter also suggested that
rather than create an exclusion based on whether the information is
``relevant'' to a request, Rule 165.2(o) should be revised to bar
individuals whose allegations are the subject of investigation by the
public entities identified in the rule.\54\
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\52\ See letter from NWC.
\53\ See letter from TAF. As an example, this commenter posits
that:
[A] request by a public employee pension fund for basic
information concerning Forex currency trades on its account could
preclude a ``voluntary'' submission of whistleblower allegations
that the Forex currency broker engaged in large-scale mischarging,
even if those allegations were not publicly known. In this instance
the information requested is ``relevant'' to the whistleblower's
allegations, even if the requesting agency is completely unaware of
those allegations.
\54\ Id.
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Other commenters posited that the Commission's Proposed Rule did
not go far enough in precluding whistleblower submissions from being
treated as ``voluntary.'' A commenter urged that the Commission's rules
should preclude an individual from making a ``voluntary'' submission
after an individual has been contacted for information during the
course of an entity's internal investigation or internal review.\55\ In
response to one specific request for comment, other commenters
advocated that the Commission not treat a submission as ``voluntary''
if the whistleblower was aware of a governmental or internal
investigation at the time of the submission, whether or not the
whistleblower received a request from the Commission or one of the
other authorities.\56\
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\55\ See letter from SIFMA/FIA.
\56\ See letters from ABA and NSCP.
---------------------------------------------------------------------------
The Commission also requested comment regarding whether a
whistleblower's submission should be deemed to be ``voluntary'' if the
information submitted was within the scope of a previous request to the
whistleblower's employer. Some commenters responded that they supported
the exclusion and suggested that it be expanded in various ways.\57\
---------------------------------------------------------------------------
\57\ See letters from SIFMA/FIA (urging elimination of the
exception that would permit an employee to make a voluntary
submission if the employer did not produce the documents or
information in a timely manner) and NSCP (employee should be
regarded as having received a request to an employer if there is a
reasonable likelihood that the employee would have been contacted by
the employer in responding to the request).
---------------------------------------------------------------------------
The Commission received varying comments regarding its Proposed
Rule to exclude whistleblowers from the definition of ``voluntarily''
if they are under a pre-existing legal or contractual duty to report
the violations to the Commission or another authority. Some commenters
opposed the exclusion on the ground that Section 23(c)(2) of the CEA
sets forth a specific list of persons whom Congress deemed to be
ineligible for awards, some as a result of their pre-existing
duties.\58\ These commenters suggested that the Commission was
expanding these exclusions in a manner that was inconsistent with
Congressional intent and the purposes of Section 23.\59\
---------------------------------------------------------------------------
\58\ Section 23(c)(2) of the CEA sets forth four categories of
individuals who are ineligible for whistleblower awards. These
include: employees of the Commission and of certain other
authorities; persons who were convicted of a criminal violation in
relation to the action for which they would otherwise be eligible
for an award; persons who submit information to the Commission that
is based on the facts underlying the covered action submitted
previously by another whistleblower; and any whistleblower who fails
to submit information to the Commission in such form as the
Commission may require by rule or regulation.
\59\ See letters from NWC; Stuart D. Meissner, LLC; National
Coordinating Committee for Multiemployer Plans (``NCCMP''); DC Bar;
and Daniel J. Hurson.
---------------------------------------------------------------------------
Other commenters favored the ``legal duty'' exclusion and
recommended that it be clarified and extended. In particular, these
commenters suggested that the exclusion should be applied to
[[Page 53181]]
various categories of individuals in the corporate context. Several
commenters urged that the Commission should not consider submissions to
be ``voluntary'' in circumstances in which an employee or an outside
service provider has a duty to report misconduct to an entity.\60\
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\60\ See letters from NSCP and FSR.
---------------------------------------------------------------------------
c. Final Rule
After considering the comments, the Commission has decided to adopt
Rule 165.2(o) without modifications. The Commission believes that a
requirement that a whistleblower come forward before being contacted by
Government investigations is both good policy and consistent with
existing case law.\61\
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\61\ Cf. Barth v. Ridgedale Electric, Inc., 44 F.3d 699 (8th
Cir. 1994); United States ex rel. Paranich v. Sorgnard, 396 F.3d 326
(3d Cir. 2005) (rejecting argument that information provided beyond
that required by subpoena is voluntary for purposes of False 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) (rejecting
argument that provision of information to the Government is always
voluntary unless compelled by subpoena).
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As adopted, Final Rule 165.2(o) provides that a submission of
original information is deemed to have been made ``voluntarily'' if the
whistleblower makes his or her submission before a request, inquiry, or
demand that relates to the subject matter of the submission is directed
to the whistleblower or anyone representing the whistleblower (such as
an attorney): (i) By the Commission; (ii) Congress; (iii) any other
federal or state authority; (iv) the Department of Justice; (v) a
registered entity; (vi) a registered futures association; or (vii) an
SRO.
The Commission believes that a whistleblower award should not be
available to an individual who makes a submission after first being
questioned about a matter (or otherwise requested to provide
information) by Commission staff acting pursuant to any of its
investigative or regulatory authorities. Only an investigative request
made by one of the other designated authorities will trigger
application of the rule, except that a request made in connection with
an examination or inspection, as well as an investigative request, by
an SRO will also render a whistleblower's subsequent submission
relating to the same subject matter not ``voluntary.'' In the context
of a request made to an employer, an employee-whistleblower will be
considered to have received a request if the documents or information
the whistleblower provides to the Commission are within the scope of
the request to the employer. This provision recognizes the important
relationship that frequently exists between examinations and
enforcement investigations, as well as the Commission's regulatory
oversight of SROs. For example, if an entity's employee were
interviewed by examiners, the employee could not later make a
``voluntary'' submission related to the subject matter of the
interview.\62\
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\62\ As is further discussed below, individuals who wait to make
their submission until after a request is directed to their employer
will not face an easy path to an award. The Commission expects to
scrutinize all of the attendant circumstances carefully in
determining whether such submissions ``significantly contributed''
to a successful enforcement action under Rule 165.2(n) in view of
the previous request to the employer on the same or related subject
matter.
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As adopted, the Commission's rule retains the provision that a
submission will not be considered ``voluntary'' if the whistleblower is
under a pre-existing legal or contractual duty to report the
information to the Commission or to any of the other authorities
designated in the rule. As adopted, Rule 165.2(o) provides that a
whistleblower cannot ``voluntarily'' submit information if the
whistleblower is required to report his ``original information'' to the
Commission pursuant to a pre-existing legal duty, a contractual duty
that is owed to the Commission or to one of the other authorities set
forth above, or a duty that arises out of a judicial or administrative
order.
For similar reasons, the Commission declines to accept the
suggestion of some commenters that a whistleblower report should not be
treated as ``voluntary'' if it was made after the whistleblower had
been contacted for information in the course of an internal
investigation. Elsewhere in the Commission's final Rules, the
Commission has attempted to create strong incentives for employees to
continue to utilize their employers' internal compliance and other
processes for receiving and addressing reports of possible violations
of law.\63\ If a whistleblower took any steps to undermine the
integrity of such systems or processes, the Commission will consider
that conduct as a factor that may decrease the amount of any award.\64\
However, a principal purpose of Section 23 is to promote effective
enforcement of the commodity laws by providing incentives for persons
with knowledge of misconduct to come forward and share their
information with the Commission. Although the Commission acknowledges
that internal investigations can be an important component of corporate
compliance, and although there are existing incentives for companies to
self-report violations, providing information to persons conducting an
internal investigation, or simply being contacted by them, may not,
without more, achieve the statutory purpose of getting high-quality,
original information about violations of the CEA directly to Commission
staff.
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\63\ See discussion below in Part II.I.
\64\ See Rule 165.9.
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14. Whistleblower(s)
a. Proposed Rule
The term ``whistleblower'' is defined in Section 23(a)(7) of the
CEA.\65\ Consistent with this language, Proposed Rule 165.2(p) defined
a whistleblower as an individual who, alone or jointly with others,
provides information to the Commission relating to a potential
violation of the CEA. An entity or other non-natural person is not
eligible to receive a whistleblower award. This definition tracks the
statutory definition of a ``whistleblower,'' except that the Proposed
Rule uses the term ``potential violation'' in order to make clear that
the whistleblower anti-retaliation protections set forth in Section
23(h) of the CEA do not depend on an ultimate adjudication, finding or
conclusion that conduct identified by the whistleblower constituted a
violation of the CEA.
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\65\ 7 U.S.C. 26(a)(7).
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Further, Proposed Rule 165.2(p) (and Proposed Rule 165.6(b)) would
make clear that the anti-retaliation protections set forth in Section
23(h) of the CEA apply irrespective of whether a whistleblower
satisfies all the procedures and conditions to qualify for an award
under the Commission's whistleblower program. Section 23(h)(1)(A) of
the CEA prohibits employment retaliation against a whistleblower who
provides information to the Commission (i) ``in accordance with this
section,'' or (ii) ``in assisting in any investigation or judicial or
administrative action of the Commission based upon or related to such
information.'' The Commission interprets the statute as designed to
extend the protections against employment retaliation delineated in
Section 23(h)(1) to any individual who provides information to the
Commission about potential violations of the CEA regardless of whether
the person satisfies procedures and conditions necessary to qualify for
an award under the Commission's whistleblower program.
b. Comments
The Commission received several comments regarding the definition
of whistleblower. Two commenters urged
[[Page 53182]]
that the term whistleblower should include only individuals who provide
information about potential violations of the commodities laws ``by
another person.'' \66\ The Commission also received several comments
regarding the anti-retaliation provision of the definition. One
commenter asserted that the anti-retaliation provisions of Proposed
Rules 165.2(p) and 165.6(b) could be interpreted to protect individuals
who have violated criminal laws, and urged that the Commission clarify
that companies are permitted ``to take adverse personnel actions
against whistleblowers for any appropriate reason other than their
whistleblower status.'' This same commenter suggested that the rules
also should be clarified to state that filing a whistleblower report
does not protect an individual from discipline or termination if the
individual was involved in, was responsible for, or lied about the
misconduct described in the report.\67\
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\66\ See letters from SIFMA/FIA and ABA.
\67\ See letter from SIFMA/FIA.
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Another commenter was concerned about the potential for abuse by
employees who might make frivolous whistleblower claims solely to avail
themselves of the anti-retaliation provisions of Part 165 or to seek a
chance to receive a potentially large award. This commenter believed
that the Commission should impose additional requirements on persons
entitled to whistleblower status and suggested that Proposed Rule
165.2(p) be revised to specify that the anti-retaliation provision
apply to a person who provides information: That is material to the
claimed violation of the CEA; that has a basis in fact or knowledge
(which must be articulated) rather than speculation; that is not based
on information that is either publicly disseminated or which the
employee should reasonably know is already known to the entity's board
of directors or chief compliance officer, or to a court or the
Commission or another governmental entity; and the provision of which
does not result in the violation of a professional obligation,
including the obligation to maintain such information in confidence.
This commenter also suggested that the Commission deliver to an
employee who has met the requisite criteria of a ``whistleblower'' a
letter or statement indicating such status by reason of the information
the employee provided.\68\ This commenter also contended that the
information regarding ``a potential violation'' language in Proposed
Rule 165.2(p) could be read to refer to future acts or omissions. As a
result, the commenter encouraged the Commission to use ``another phrase
(such as `claimed violation') and to add a definition of the term to
further minimize the ambiguity.'' The commenter posited that the
definition of the term should be further clarified to indicate that it
does not include matters that are clearly stale (e.g., an alleged
violation that occurred ten years ago). Two other commenters
recommended that the rule exclude any individuals who engaged in the
underlying misconduct from eligibility as a whistleblower.\69\ One
commenter supported anti-retaliation protection of whistleblowers even
if they do not qualify for an award.\70\ Another commenter suggested
that the Commission should find that any entity that retaliates against
a whistleblower commits ``a separate and independent violation'' of the
commodity futures laws subjecting the entity to the maximum penalties
for such violation provided for under the law, up to and including a
delisting of the entity.\71\
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\68\ See letter from ABA.
\69\ See letters from Association of Corporate Counsel (``ACC'')
and FSR.
\70\ See letter from POGO.
\71\ See letter from NCCMP.
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c. Final Rule
Upon consideration of the comments received, the Commission has
decided to adopt Rule 165.2(p) as proposed. The anti-retaliation
provisions reflect Congress's intent to implement anti-retaliation
protections for whistleblowers who provide original information to the
Commission. These anti-retaliation protections do not provide blanket
immunity to whistleblowers from adverse employment actions by their
employers; whistleblowers are protected only to the extent that the
employer took the adverse employment action because ``of any lawful act
done by the whistleblower'' in providing information to the Commission
or in assisting the Commission in any related investigation or
enforcement action.\72\ With respect to the commenter concern regarding
potential bad faith reporting, Congress placed a procedural safeguard
in the statute that advises whistleblowers that they can be prosecuted
for making false statements to the Commission under 18 U.S.C. 1001.\73\
This procedural safeguard will reduce the risk of meritless referrals.
Moreover, whistleblowers are incentivized to provide referrals only if
they believe those referrals have merit since they can only get an
award if their referral leads to a successful enforcement action (see
Rules 165.2(i) and 165.9.). Also as indicated above, several commenters
addressed issues relating to eligibility and culpability of a
whistleblower. Those issues are addressed in Rules 165.6 and 165.17,
respectively.
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\72\ 7 U.S.C. 26(h)(1)(A).
\73\ See Section 23(m) of the CEA, 7 U.S.C. 26(m). Such false
statements also could be a violation of Section 9(a)(3) of the CEA,
7 U.S.C. 13(a)(3), and could potentially be a violation of Section
6(c)(2) of the CEA, 7 U.S.C. 9, 15. Therefore, a whistleblower who
provides information to the Commission in violation of these
sections would not be entitled to retaliation protection because his
provision of information to the Commission would be in violation of
law. See 7 U.S.C. 26(h)(1)(A).
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The Commission does not have the statutory authority to conclude
that any entity that retaliates against a whistleblower commits a
separate and independent violation of the CEA. Section 23(h)(1)(B)(i)
clearly states that only an individual who alleges retaliation in
violation of being a whistleblower may bring such a cause of action.
Regarding Rule 165.2(p)(2), the Commission has made a slight
modification. Pursuant to the change, in order to be considered a
whistleblower for purposes of the anti-retaliation protections afforded
by Section 23(h)(1)(A)(i) of the CEA, the whistleblower must possess a
reasonable belief that the information the whistleblower provides
relates to a possible violation of the CEA.
C. Rule 165.3--Procedures for Submitting Original Information
1. Proposed Rule
The Commission proposed a two-step process for the submission of
original information under the whistleblower award program. In general,
the first step would require the submission of the standard form on
which the information concerning potential violations of the CEA are
reported. The second step would require the whistleblower to complete a
unique form, signed under penalties of perjury (consistent with Section
23(m) of the CEA), in which the whistleblower would be required to make
certain representations concerning the veracity of the information
provided and the whistleblower's eligibility for a potential award. The
use of standardized forms will greatly assist the Commission in
managing and tracking numerous tips from potential whistleblowers.
Forms will also better enable the Commission to find common threads
among tips and otherwise make better use of the information provided,
and assist with the review of requests for payment under the
whistleblower provisions. The purpose of requiring a sworn declaration
is to help deter the
[[Page 53183]]
submission of false and misleading tips and the resulting inefficient
use of the Commission's resources. The requirement would also mitigate
the potential harm to companies and individuals resulting from false or
spurious allegations of wrongdoing.
As set forth in Proposed Rule 165.5, Commission staff may also
request testimony and additional information from a whistleblower
relating to the whistleblower's eligibility for an award.
a. Form TCR and Instructions
Subparagraph (a) of Proposed Rule 165.3 required the submission of
information to the Commission on proposed Form TCR. The Form TCR,
``Tip, Complaint or Referral,'' and the instructions thereto, were
designed to capture basic identifying information about a complainant
and to elicit sufficient information to determine whether the conduct
alleged suggests a violation of the CEA.
b. Form WB-DEC and Instructions
In addition to Form TCR, the Commission proposed in subparagraph
(b) of Proposed Rule 165.3 to require that whistleblowers who wish to
be considered for an award in connection with the information they
provide to the Commission also complete and provide the Commission with
proposed Form WB-DEC, ``Declaration Concerning Original Information
Provided Pursuant to Section 23 of the Commodity Exchange Act.''
Proposed Form WB-DEC would require a whistleblower to answer certain
threshold questions concerning the whistleblower's eligibility to
receive an award. The form also would contain a statement from the
whistleblower acknowledging that the information contained in the Form
WB-DEC, as well as all information contained in the whistleblower's
Form TCR, is true, correct and complete to the best of the
whistleblower's knowledge, information and belief. Moreover, the
statement would acknowledge the whistleblower's understanding that the
whistleblower may be subject to prosecution and ineligible for an award
if, in the whistleblower's submission of information, other dealings
with the Commission, or dealings with another authority in connection
with a related action, the whistleblower knowingly and willfully made
any false, fictitious, or fraudulent statements or representations, or
used any false writing or document knowing that the writing or document
contained any false, fictitious, or fraudulent statement or entry.
In instances where information is provided by an anonymous
whistleblower, proposed subparagraph (c) of Proposed Rule 165.3
required that the whistleblower's identity must be disclosed to the
Commission and verified in a form and manner acceptable to the
Commission consistent with the procedure set forth in Proposed Rule
165.7(c) prior to the Commission's payment of any award.
The Commission proposed to allow two alternative methods of
submission of Form TCRs and WB-DEC. A whistleblower would have the
option of submitting a Form TCR electronically through the Commission's
Web site, or by mailing or faxing the form to the Commission.
Similarly, a Form WB-DEC could be submitted electronically, in
accordance with instructions set forth on the Commission's Web site or,
alternatively, by mailing or faxing the form to the Commission.
c. Perfecting Whistleblower Status for Submissions Made Before
Effectiveness of the Rules
As previously discussed, Section 748(k) of the Dodd-Frank Act
stated that information submitted to the Commission by a whistleblower
after the date of enactment, but before the effective date of the
Proposed Rules, retained the status of original information. The
Commission has already received tips from potential whistleblowers
after the date of enactment of the Dodd-Frank Act. Proposed Rule
165.3(d) provided a mechanism by which whistleblowers who fall into
this category could perfect their status as whistleblowers once the
Final Rules are adopted. Subparagraph (d)(1) required a whistleblower
who provided original information to the Commission in a format or
manner other than a Form TCR to submit a completed Form TCR within one
hundred twenty (120) days of the effective date of the Final Rules and
to otherwise follow the procedures set forth in subparagraphs (a) and
(b) of Proposed Rule 165.3. If a whistleblower provided the original
information to the Commission in a Form TCR, subparagraph (d)(2) would
require the whistleblower to submit Form WB-DEC within one hundred
twenty (120) days of the effective date of the Final Rules in the
manner set forth in subparagraph (b) of Proposed Rule 165.3.
2. Comments
The Commission received several comments regarding Proposed Rule
165.3. A commenter advised the Commission that the rules as currently
proposed are not ``user friendly'' and modifications must be made to
both procedures and forms to facilitate disclosures, and to do so would
minimize the risks that otherwise qualified applicants will be denied
based on a technicality.\74\ Several commenters referenced Proposed
Rule 165.3 while advocating internal reporting.\75\ They suggested that
a whistleblower who reports internally prior to reporting to the
Commission should be given one year to file an application; and that 90
days to file Forms TCR and WB-DEC may not be sufficient time for a firm
to assess a complex situation, and, therefore, the deadline should be a
minimum of 90 days or such longer time as is reasonable.
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\74\ See letter from NWC.
\75\ See letters from NSCP, ABA, and NCCMP.
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Another commenter suggested that, if documents are delivered
directly to the Commission, then the representations on a Form TCR
should be subject to penalty of perjury, similar to Form WB-DEC. This
commenter also suggested that attorneys who assist clients in
submitting anonymous claims should be required to review the client's
information and certify to the Commission that the client can show
``particularized facts suggesting a reasonable probability that a
violation has actually occurred or is occurring.'' This Commenter also
stated that the 90-day deadline should be eliminated, but that if it is
not eliminated the deadline should be at least 180 days.\76\
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\76\ See letter from ABA.
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3. Final Rule
After consideration of the comments received on Proposed Rule
165.3, the Commission has decided to adopt the rule with changes. In
response to comments calling for the streamlining of process, and in
the interest of harmonization with the SEC, the Commission has
incorporated the substance of Form WB-DEC into both the Form TCR and
WB-APP.\77\ The forms will be changed to advise potential
whistleblowers (and their attorneys) that the forms must be completed
under oath and subject to the penalty of perjury. Also, changes have
been made to Rule 165.3 regarding the incorporation of the WB-DEC form
into both the Form-TCR and Form WB-APP.
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\77\ Form WB-APP and the award application process are discussed
below in section II.G.
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D. Rule 165.4--Confidentiality
1. Proposed Rule
Proposed Rule 165.4 summarized the confidentiality requirements set
forth in Section 23(h)(2) of the CEA \78\ with
[[Page 53184]]
respect to information that could reasonably be expected to reveal the
identity of a whistleblower. As a general matter, it is the
Commission's policy and practice to treat all information obtained
during its investigations as confidential and nonpublic. Disclosures of
enforcement-related information to any person outside the Commission
may only be made as authorized by the Commission and in accordance with
applicable laws and regulations. Consistent with Section 23(h)(2), the
Proposed Rule explains that the Commission will not reveal the identity
of a whistleblower or disclose other information that could reasonably
be expected to reveal the identity of a whistleblower, except under
circumstances described in the statute and the rule.\79\ As is further
explained below, there may be circumstances in which disclosure of
information that identifies a whistleblower will be legally required or
will be necessary for the protection of market participants.
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\78\ 7 U.S.C. 26(h)(2).
\79\ Section 23(h)(2)(A) provides that the Commission shall not
disclose any information, including that provided by the
whistleblower to the Commission, which could reasonably be expected
to reveal the identity of the whistleblower, except in accordance
with the provisions of Section 552a of title 5, United States Code,
unless and until required to be disclosed to a defendant or
respondent in connection with a public proceeding instituted by the
Commission or governmental organizations described in subparagraph
(C).
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Subparagraph (a)(1) of the Proposed Rule authorized disclosure of
information that could reasonably be expected to reveal the identity of
a whistleblower when disclosure is required to a defendant or
respondent in a public proceeding that the Commission files, or in
another public action or proceeding filed by an authority to which the
Commission is authorized to provide the information. For example, in a
related action brought as a criminal prosecution by the Department of
Justice, disclosure of a whistleblower's identity may be required in
light of a criminal defendant's constitutional right to be confronted
by the witnesses against him.\80\ Subparagraph (a)(2) would authorize
disclosure to: The Department of Justice; another appropriate
department or agency of the Federal Government acting within the scope
of its jurisdiction; a registered entity, registered futures
association, or SRO; a state attorney general in connection with a
criminal investigation; any appropriate state department or agency
acting within the scope of its jurisdiction; or a foreign futures
authority.
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\80\ See U.S. Const. Amend. VI.
---------------------------------------------------------------------------
Because many whistleblowers may wish to provide information
anonymously, subparagraph (b) of the Proposed Rule, consistent with
Section 23(d) of the CEA, states that anonymous submissions are
permitted with certain specified conditions. Subparagraph (b) would
require that anonymous whistleblowers who submit information to the
Commission must follow the procedure in Proposed Rule 165.3(c) for
submitting original information anonymously. Further, anonymous
whistleblowers would be required to follow the procedures set forth in
Proposed Rule 165.7(c) requiring that the whistleblower's identity be
disclosed to the Commission and verified in a form and manner
acceptable to the Commission prior to the Commission's payment of any
award.
The purpose of this requirement is to prevent fraudulent
submissions and facilitate communication and assistance between the
whistleblower and the Commission's staff. A whistleblower may be
represented by counsel--whether submitting information anonymously or
not.\81\ The Commission emphasizes that anonymous whistleblowers have
the same rights and responsibilities as other whistleblowers under
Section 23 of the CEA and the Final Rules, unless expressly exempted.
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\81\ See 7 U.S.C. 26(d)(1). Under the statute, however, an
anonymous whistleblower seeking an award is required to be
represented by counsel. 7 U.S.C. 26(d)(2).
---------------------------------------------------------------------------
2. Comments
The Commission received one comment regarding Proposed Rule 165.4.
The commenter stated that the Commission has no authority to compel an
attorney to reveal the identity of an anonymous whistleblower, and
that, in cases where the Commission knows the whistleblower's identity,
the rules should require the Commission to notify the whistleblower,
and provide the whistleblower an opportunity to seek a protective
order, whenever the whistleblower's identity may be subject to
disclosure.\82\
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\82\ See letter from NWC.
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3. Final Rule
The Commission is adopting Rule 165.4 as proposed. The rule tracks
the provisions of the statute and identifies those instances where the
Commission, in furtherance of its regulatory responsibilities, may
provide information to certain delineated recipients.
The Commission plans to work closely with whistleblowers, and their
attorneys if they are represented, in an effort to take appropriate
steps to maintain their confidentiality, consistent with the
requirements of Section 23(h)(2).\83\ At the same time, however,
Congress expressly authorized the Commission to disclose whistleblower-
identifying information subject to the limitations and conditions set
forth in Section 23(h)(2)(C) of the CEA. Accordingly, the Commission
does not believe it would be consistent with either Congress's intent
or the proper exercise of the Commission's enforcement responsibilities
to require by rule that Commission staff notify a whistleblower prior
to any authorized disclosure, and provide the whistleblower with an
opportunity to seek a protective order.
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\83\ For example, the Commission is adding a question to our
whistleblower submission form that asks whistleblowers to tell us if
they are giving us any particular documents or other information in
their submission that they believe could reasonably be expected to
reveal their identity.
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E. Rule 165.5--Prerequisites to the Consideration of an Award
1. Proposed Rule
Proposed Rule 165.5 summarized the general prerequisites for
whistleblowers to be considered for the payment of awards set forth in
Section 23(b)(1) of the CEA. As set forth in the statute, subparagraph
(a) states that, subject to the eligibility requirements in the
Regulations, the Commission will pay an award or awards to one or more
whistleblowers who voluntarily provide the Commission with original
information that led to the successful resolution of a covered
Commission judicial or administrative action or the successful
enforcement of a related action by: the Department of Justice; an
appropriate department or agency of the Federal Government acting
within the scope of its jurisdiction; a registered entity, registered
futures association or SRO; a state attorney general in connection with
a criminal investigation; any appropriate state department or agency
acting within the scope of its jurisdiction; or a foreign futures
authority.
Subparagraph (b) of Proposed Rule 165.5 emphasizes that, in order
to be eligible, the whistleblower must have submitted to the Commission
original information in the form and manner required by Proposed Rule
165.3. The whistleblower must also provide the Commission, upon its
staff's request, certain additional information, including:
explanations and other assistance, in the manner and form that staff
may request, so that the staff may evaluate the use of the information
[[Page 53185]]
submitted; all additional information in the whistleblower's possession
that is related to the subject matter of the whistleblower's
submission; and testimony or other evidence acceptable to the staff
relating to the whistleblower's eligibility for an award. Subparagraph
(b) of Proposed Rule 165.5 further requires that, to be eligible for an
award, a whistleblower must, if requested by Commission staff, enter
into a confidentiality agreement in a form acceptable to the
Commission, including a provision that a violation of the
confidentiality agreement may lead to the whistleblower's ineligibility
to receive an award.
2. Comments
The Commission received comment on Proposed Rule 165.5 from one
commenter.\84\ This commenter argued that the Dodd-Frank Act does not
require or authorize a rule that requires a whistleblower to sign a
confidentiality or non-disclosure agreement. This commenter reasoned
that if a whistleblower files a claim and refuses to sign such an
agreement it could impact the Commission's willingness to share
information with the whistleblower during the investigation, or even to
go forward with an enforcement action. Also, this commenter suggested
that a whistleblower should be able to object to the actions of the
Commission if the whistleblower believes the Commission is improperly
handling an investigation, without fear of being disqualified from an
award. Finally, this commenter argued that a whistleblower should not
be required to sign a confidentiality agreement in case the
whistleblower has clients who need to know about the whistleblower's
underlying concerns. For example, if a whistleblower had clients that
had funds in a company operating a Ponzi scheme, it would not be
beneficial to the clients for the whistleblower to not tell the clients
about the scheme.
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\84\ See letter from NWC.
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3. Final Rule
After considering these comments, the Commission is adopting the
rule as proposed. The rule tracks and summarizes the general
prerequisites for a whistleblower to be considered for an award under
Section 23(b)(1) of the CEA. In addition, the Commission does not share
information regarding investigations or enforcement actions with
individuals who provide tips.\85\ Requiring a whistleblower to sign a
confidentiality agreement will serve to ensure that the entity being
investigated is not made aware of the investigation prematurely. The
Commission also has discretion in how it handles investigations and
enforcement actions.\86\
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\85\ See, e.g., Rule 11.3, 17 CFR 11.3 (2011) (providing, in
general, that ``[a]ll information and documents obtained during the
course of an investigation, whether or not obtained pursuant to
subpoena, and all investigative proceedings shall be treated as non-
public by the Commission and its staff * * *.'').
\86\ See, e.g., Appendix A to Part 11 of the Commission's Rules
(``Informal Procedure Relating to the Recommendation of Enforcement
Proceedings;'' providing that the Commission's Division of
Enforcement, ``in its discretion, may inform persons who may be
named in a proposed enforcement proceeding of the nature of the
allegations pertaining to them.'').
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F. Rule 165.6--Whistleblowers Ineligible for an Award
1. Proposed Rule
Subparagraph (a) of Proposed Rule 165.6 specified the categories of
individuals who are statutorily ineligible for an award under Section
23 of the CEA. These include persons who are, or were at the time they
acquired the original information, a member, officer, or employee of:
The Commission; the Board of Governors of the Federal Reserve System;
the Office of the Comptroller of the Currency; the Board of Directors
of the Federal Deposit Insurance Corporation; the Director of the
Office of Thrift Supervision; the National Credit Union Administration
Board; the SEC; the Department of Justice; a registered entity; a
registered futures association; an SRO; or a law enforcement
organization. Further, Proposed Rule 165.6(a)(2) made clear that no
award will be made to any whistleblower who is convicted of a criminal
violation related to the judicial or administrative action for which
the whistleblower otherwise could receive an award under Proposed Rule
165.7.
In order to prevent evasion of these exclusions, subparagraph
(a)(4) of the Proposed Rule also provided that persons who acquire
information from ineligible individuals are ineligible for an award.
Consistent with Section 23(m) of the CEA, a whistleblower is ineligible
if in his submission of information or application for an award, in his
other dealings with the Commission, or in his dealings with another
authority in connection with a related action he: Knowingly and
willfully makes any false, fictitious, or fraudulent statement or
representation, or uses any false writing or document, knowing that it
contains any false, fictitious, or fraudulent statement or entry; or
omits any material fact the absence of which would make any other
statement or representation made to the Commission or any other
authority misleading.
Subparagraph (b) of Proposed Rule 165.6 reiterated that a
determination that a whistleblower is ineligible to receive an award
for any reason does not deprive the individual of the anti-retaliation
protections set forth in Section 23(h)(1) of the CEA.
2. Comments
The Commission has received comments recommending that the
Commission expand the list of persons ineligible to receive an award to
individuals who fail to first report violations internally before
reporting violations to the Commission.\87\ Some commenters have
suggested that the only exception to a requirement of mandatory
internal reporting for award eligibility should be when the
whistleblower can prove that the employer's internal compliance system
is inadequate.\88\ One commenter proposed that for an employer's
internal compliance system to be effective it would have to provide
for: (1) A complaint-reporting hotline; (2) a designated officer (such
as the chief compliance officer), who is responsible for overseeing
investigations of complaints, and who has access to senior executive
officers with authority to respond to well-founded complaints; and (3)
protection to an individual against retaliation for submitting a
complaint.\89\ Another commenter similarly suggests that a
whistleblower who fails to report internally should only be eligible to
receive an award if he can demonstrate that the company's internal
reporting program fails to comply with a federal standard (if
applicable) or is inadequate (if there is no Federal standard).\90\
This commenter further suggests that the Commission should afford an
entity a reasonable opportunity (of at least 180 days) to address the
alleged violation.\91\
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\87\ See letters from NSCP, EEI, ICI, ABA, and FSR.
\88\ See letter from SIFMA/FIA.
\89\ See letter from SIFMA/FIA.
\90\ See letter from U.S. Chamber of Commerce.
\91\ See letter from U.S. Chamber of Commerce.
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Commenters also suggest that a whistleblower who prematurely
reports to the Commission be eligible for an award, but only at the
lower end of the permissible range.\92\ Commenters also urge the
Commission to deem ineligible for a whistleblower award individuals
who: (1) Violate entity rules requiring that misconduct be reported
internally; (2) falsely certify that they are not aware
[[Page 53186]]
of any misconduct; (3) refuse to cooperate with an entity's internal
investigation; and (4) provide inaccurate or incomplete information or
otherwise hinder an internal investigation.\93\ This commenter further
suggests that a whistleblower who reports violations to an SRO should
have the same eligibility for an award as a whistleblower who reports
to the Commission.\94\ Another commenter commented that persons who
have engaged in culpable conduct should not be eligible for awards.\95\
This commenter suggested that Rule 165.6(a)(2) provide that a person
will not be eligible for an award ``if he or she (or an entity whose
liability is based substantially on conduct that the whistleblower
directed, planned or initiated) has been convicted of a criminal
violation (including entering into a plea agreement or entering a plea
of nolo contendere), or enters into a cooperation, deferred
prosecution, or non-prosecution agreement in connection with, a
proceeding brought by the Commission, an SRO, or other regulator or
government entity, which proceeding is related to a Commission action
or a related action for which the whistleblower could otherwise receive
an award.'' One commenter also suggested that the Commission should
exclude wrong-doers who have participated in or facilitated the
violation of the CEA from award eligibility.\96\ Another commenter
suggested that culpable individuals, including in-house lawyers, and
other compliance personnel should not be eligible for whistleblower
awards.\97\ The Commission also received comment that the Commission
follow the SEC's approach and exclude the spouses, parents, children or
siblings of members of the agency to avoid the appearance of
impropriety.\98\
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\92\ See letter from SIFMA/FIA.
\93\ See letter from SIFMA/FIA.
\94\ See letter from SIFMA/FIA.
\95\ See letter from ABA.
\96\ See letter from U.S. Chamber of Commerce.
\97\ See letter from Hunton & Williams LLP on behalf of Working
Group of Commercial Energy Firms (``Working Group'') at 2.
\98\ See letter from FSR.
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The Commission also received a number of other miscellaneous
comments. One commenter suggested that the exclusion should apply to
the information, and not just persons, by suggesting the Commission
exclude from award eligibility information reported after an employer
has initiated an investigation.\99\ The Commission also received a
comment suggesting that the Rule require use of internal procedures as
a condition for receiving an award, because such a condition would not
impinge on a whistleblower's right to contact the Commission or affect
the anti-retaliation provisions.\100\ This commenter also suggested
that the Commission revise the rule to include potential exclusions of
foreign persons.
---------------------------------------------------------------------------
\99\ See letter from U.S. Chamber of Commerce.
\100\ See letter from FSR.
---------------------------------------------------------------------------
3. Final Rule
The Commission has considered each of the comments received, and
has decided to adopt the rule with minor changes. With respect to the
specific internal reporting issue, after considering the comments
received, the Commission has concluded not to amend the rule to make
ineligible any whistleblowers who do not participate in internal
corporate compliance programs.\101\ The Commission will, however,
provide whistleblowers with incentives to report internally. The
Commission has decided to adopt Rule 165.6 with a minor change to make
ineligible members or officers of any foreign regulatory authority or
law enforcement organization, extrapolating from Section 23(c)(2)(i)
and (vi) of the Dodd-Frank Act the category making appropriate
regulatory agencies and law enforcement organizations ineligible.\102\
The Commission has also made explicit in Rule 165.6(a)(8) the
ineligibility of any whistleblower who acquired the original
information the whistleblower gave the Commission from any other person
with the intent to evade any provision of the Final Rules.
---------------------------------------------------------------------------
\101\ See also discussion below in Part II.S.
\102\ See Rule 165.6(a)(6), (7).
---------------------------------------------------------------------------
G. Rule 165.7--Procedures for Award Applications and Commission Award
Determinations
1. Proposed Rule
Proposed Rule 165.7 described the steps a whistleblower would be
required to follow in order to make an application for an award in
relation to a Commission covered judicial or administrative action or
related action. In addition, the rule described the Commission's
proposed claims review process.
In regard to covered actions, the proposed process would begin with
the publication of a ``Notice of a Covered Action'' (``Notice'') on the
Commission's Web site. Whenever a covered judicial or administrative
action brought by the Commission results in the imposition of monetary
sanctions exceeding $1,000,000, the Commission will cause a Notice to
be published on the Commission's Web site subsequent to the entry of a
final judgment or order in the action that by itself, or collectively
with other judgments or orders previously entered in the action,
exceeds the $1,000,000 threshold. The Commission's Proposed Rule
required claimants to file their claim for an award within sixty (60)
days of the date of the Notice.
In regard to related actions, a claimant would be responsible for
tracking the resolution of the related action. The Commission's
Proposed Rule required claimants to file their claim for an award in
regard to a related action within sixty (60) days after monetary
sanctions were imposed in the related action. A claimant's failure to
timely file a request for a whistleblower award would bar that
individual from later seeking a recovery.\103\
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\103\ See, e.g., Yuen v. United States, 825 F.2d 244 (9th Cir.
1987) (taxpayer barred from recovery due to failure to timely file a
written request for refund).
---------------------------------------------------------------------------
Subparagraph (b) of Proposed Rule 165.7 described the procedure for
making a claim for an award. Specifically, a claimant would be required
to submit a claim for an award on proposed Form WB-APP (``Application
for Award for Original Information Provided Pursuant to Section 23 of
the Commodity Exchange Act''). Proposed Form WB-APP, and the
instructions thereto, would elicit information concerning a
whistleblower's eligibility to receive an award at the time the
whistleblower filed his claim. The form would also provide an
opportunity for the whistleblower to ``make his case'' for why he is
entitled to an award by describing the information and assistance he
has provided and its significance to the Commission's successful
action.\104\
---------------------------------------------------------------------------
\104\ See discussion of Proposed Rule 165.9 for a non-exhaustive
list of factors the Commission preliminarily believes it will
consider in determining award amounts.
---------------------------------------------------------------------------
Subparagraph (b) of Proposed Rule 165.7 provided that a claim on
Form WB-APP, including any attachments, must be received by the
Commission within sixty (60) calendar days of the date of the Notice or
sixty (60) calendar days of the date of the imposition of the monetary
sanctions in the related action, the trigger date depending upon which
action is the basis for the claimant's award request.
Subparagraph (c) included award application procedures for a
whistleblower who submitted original information to the Commission
anonymously. Whistleblowers who submitted original information
anonymously, but who make a claim for a whistleblower award on a
disclosed basis, are required to disclose their identity on the Form
WB-APP and include with the Form WB-APP a
[[Page 53187]]
signed and completed Form WB-DEC. Whistleblowers who submitted
information anonymously, and make a claim for a whistleblower award on
an anonymous basis, must be represented by counsel and must provide
their counsel with a completed and signed Form WB-DEC by no later than
the date upon which the counsel submits to the Commission the
whistleblower's Form WB-APP. In addition, whistleblower's counsel must
submit with the Form WB-APP a separate Form WB-DEC certifying that the
counsel has verified the whistleblower's identity, has reviewed the
whistleblower's Form WB-DEC for completeness and accuracy, will retain
the signed original of the whistleblower's Form WB-DEC in counsel's
records, and will produce the whistleblower's Form WB-DEC upon request
of the Commission's staff. Proposed Rule 165.7(c) made explicit that
regardless of whether the whistleblower made an award application on a
disclosed or anonymous basis, the whistleblower's identity must be
verified in a form and manner that is acceptable to the Commission
prior to the payment of any award.
Subparagraph (d) of Proposed Rule 165.7 described the Commission's
claims review process. The claims review process would begin upon the
expiration of the time for filing any appeals of the Commission's
judicial or administrative action and the related action(s), or, where
an appeal has been filed, after all appeals in the action or related
action(s) have been concluded.
Under the proposed process, the Commission would evaluate all
timely whistleblower award claims submitted on Form WB-APP. In
connection with this process, the Commission could require that
claimants provide additional information relating to their eligibility
for an award or satisfaction of any of the conditions for an award, as
set forth in Proposed Rule 165.5(b). Following that evaluation, the
Commission would send any claimant a determination setting forth
whether the claim is allowed or denied and, if allowed, setting forth
the proposed award percentage amount.
2. Comments
One commenter stated that Proposed Rule 165.7 is unworkable, and
that whistleblowers cannot be expected to follow the Commission's Web
site and understand that a published sanction on the web site is
related to the information provided by the whistleblower.\105\ This
commenter also suggested that when the Commission believes it will
obtain a sanction, discussions should be initiated with the
whistleblower to negotiate the proper percentage of award because to do
so would reduce administrative costs, facilitate cooperation between
the Commission and the whistleblower, and expedite the payment of
awards.\106\ This commenter supported this assertion by referencing the
qui tam procedure under the False Claims Act.\107\ Commenters suggested
that the Commission add or revise rules to incorporate recommendations
made by the SEC Office of the Inspector General (``OIG'') in its audit
of the SEC's previous whistleblower award program.\108\ One commenter
suggested that the Commission examine ways to notify whistleblowers of
the status of their award without releasing confidential information
during the course of an investigation.\109\ Another commenter stated
that Proposed Rule 165.7 unduly burdens and creates hurdles for
whistleblowers by requiring that they notify the Commission of their
claim for an award. This commenter argued that because the Commission
handles enforcement actions and knows which individuals made
submissions, the Commission should notify potential claimants that
their claim to an award, if any, has ripened.\110\
---------------------------------------------------------------------------
\105\ See letter from NWC.
\106\ See letter from NWC.
\107\ See letter from NWC.
\108\ See letters from NWC, POGO; see also SEC OIG ``Assessment
of the SEC's Bounty Program,'' Mar. 29, 2010, Report No. 474.
\109\ See letter from POGO.
\110\ See letter from TAF.
---------------------------------------------------------------------------
Similarly, another commenter suggested that the Commission should
streamline the whistleblower application process by adopting a process
similar to the whistleblower process adopted by the IRS, which another
commenter claims is more user-friendly and efficient. This commenter
contended that it is an onerous condition to require a whistleblower to
track on the Commission's Web site the disposition of the covered
action and that the 60-day period is too narrow a window to allow a
whistleblower to complete an application for an award.\111\
---------------------------------------------------------------------------
\111\ See letter from NCCMP.
---------------------------------------------------------------------------
3. Final Rule
After considering the comments received, the Commission has decided
to adopt Rule 165.7 with changes. First, the Commission has decided to
increase the period for claimants to file their claim for an award from
sixty (60) days to ninety (90) days. This additional time should
provide claimants with a better opportunity to review the Commission's
Web site and file an application following the publication of a Notice.
In the Commission's view, this 90-day period strikes an appropriate
balance between competing whistleblower interests--allowing all
potential whistleblowers a reasonable opportunity to periodically
review the Commission's Web site and to file an application, on the one
hand, while providing finality to the application period so that the
Commission can begin the process of assessing any applications and
making a timely award to any qualifying whistleblowers, on the other
hand.
Second, in light of comments that the Commission simplify the WB-
APP form, the Commission has made optional Section G (``Entitlement to
Award) of the form, which provides whistleblowers with the opportunity
to ``[e]xplain the basis for the whistleblower's belief that the
whistleblower is entitled to an award'' and to ``[p]rovide any
additional information the whistleblower think may be relevant in light
of the criteria for determining the amount of an award.'' As commenters
stated, when a whistleblower has worked closely with the staff on a
matter, requiring that whistleblower to furnish a submission explaining
the degree and value of his or her assistance may be unnecessary. At
the same time, such a whistleblower--or other claimants who have not
worked as closely with the staff and wish to advocate the value of
their assistance--should have the opportunity to do so. The Commission
has determined not to make any further modifications to the form,
however, because the remaining information that the Commission requests
is in its view necessary to provide a sufficient record for a full and
fair consideration of the claimant's application (and, if a petition
for review is filed, so that the court of appeals has a sufficient
record to conduct a review).
The Commission has decided not to eliminate the Notice or to
otherwise model the procedures after those employed in the qui tam
context. The qui tam context is substantially different from the
Commission's situation because qui tam actions necessarily involve one
or more known individuals with whom the Department of Justice will have
worked. By contrast, in enforcement actions that the Commission
institutes and litigates (based in part on information and assistance
from one or more whistleblowers), there may be one whistleblower with
whom the Commission has worked closely, but there may be other
claimants who have
[[Page 53188]]
a potential basis for award eligibility as well. The Commission's
procedures must provide due process to all potential claimants and
accordingly cannot be restricted by the happenstance that some
claimants worked more closely with staff. For that reason, the
Commission believes the ``Notice of Covered Action'' procedure provides
the best mechanism to provide notice to all whistleblower claimants who
may have contributed to the action's success.\112\
---------------------------------------------------------------------------
\112\ The SEC takes the same approach to this issue. See SEC
Rule 240.21F-10(a).
---------------------------------------------------------------------------
H. Rule 165.8--Amount of Award
1. Proposed Rule
If all conditions are met, Proposed Rule 165.8 provided that the
whistleblower awards shall be in an aggregate amount equal to between
10 and 30 percent, in total, of what has been collected of the monetary
sanctions imposed in the Commission's action or related actions. This
range is specified in Section 23(b)(1) of the CEA. Where multiple
whistleblowers are entitled to an award, subparagraph (b) stated that
the Commission will independently determine the appropriate award
percentage for each whistleblower, but total award payments, in the
aggregate, will equal between 10 and 30 percent of the monetary
sanctions collected either in the Commission's action or a related
action (but not both the Commission's action and the related action).
2. Comments
The Commission received one comment on this Proposed Rule. The
commenter, a United States Senator, suggested that the Commission place
reasonable monetary limits on awards to protect against inappropriate
monetary incentives while still encouraging potential whistleblowers to
come forward. This commenter also suggested that the Commission place
reasonable limits on amounts of funds that can be awarded to any single
whistleblower in any one matter.\113\ This commenter further suggested
that the Commission provide financial incentives to whistleblowers who
report to their employers' internal compliance programs, which will
give the company an earlier opportunity to address potential problems
and prevent further harm.\114\
---------------------------------------------------------------------------
\113\ See letter from Senator Carl Levin.
\114\ See letter from Senator Carl Levin.
---------------------------------------------------------------------------
3. Final Rule
After considering the comment received, the Commission is adopting
Rule 165.8 as proposed because it follows the statutory requirements.
Paragraph (b) of Section 23 of the CEA states that the Commission will
independently determine the appropriate award percentage for each
whistleblower, but total award payments, in the aggregate, will equal
between 10 and 30 percent of the monetary sanctions collected in the
Commission's action or any related action. The Commission's Final Rule
tracks this provision. Thus, for example, one whistleblower could
receive an award of 25 percent of the collected sanctions, and another
could receive an award of 5 percent, but they could not each receive an
award of 30 percent. As the Commission noted in the Proposed Rule,
because the Commission anticipates that the timing of award
determinations and the value of a whistleblower's contribution could be
different for the Commission's action and for related actions, the Rule
would provide that the percentage awarded in connection with a
Commission action may differ from the percentage awarded in related
actions. But, in any case, the amounts would, in total, fall within the
statutory range of 10 to 30 percent. As to the suggestion that the
Commission use its discretion to avoid giving excessive awards, the
Commission notes that the statute requires that the Commission give an
award of a minimum of 10 percent of the amount collected regardless of
the overall size of the resultant award, and the Commission does not
have discretion to reduce that statutory minimum.\115\
---------------------------------------------------------------------------
\115\ See discussion below, in Part II.S., regarding Internal
Reporting and Harmonization.
---------------------------------------------------------------------------
I. Rule 165.9--Criteria for Determining Amount of Award
1. Proposed Rule
Assuming that all of the conditions for making an award to a
whistleblower have been satisfied, Proposed Rule 165.9 set forth the
criteria that the Commission would take into consideration in
determining the amount of the award. Subparagraphs (a)(1) through (3)
of the Proposed Rule recited three criteria that Section 23(c)(1)(B) of
the CEA requires the Commission to consider, and subparagraph (a)(4)
adds a fourth criterion based upon the discretion given to the
Commission to consider ``additional relevant factors'' in determining
the amount of an award.
Subparagraph (a)(1) requires the Commission to consider the
significance of the information provided by a whistleblower to the
success of the Commission action or related action. Subparagraph (a)(2)
requires the Commission to consider the degree of assistance provided
by the whistleblower and any legal representative of the whistleblower
in the Commission action or related action. Subparagraph (a)(3)
requires the Commission to consider the programmatic interest of the
Commission in deterring violations of the CEA by making awards to
whistleblowers that provide information that led to successful
enforcement of covered judicial or administrative actions or related
actions. Subparagraph (a)(4) would permit the Commission to consider
whether an award otherwise enhances the Commission's ability to enforce
the CEA, protect customers, and encourage the submission of high
quality information from whistleblowers.
The Commission anticipates that the determination of award amounts
pursuant to subparagraphs (a)(1)-(4) will involve highly individualized
review of the circumstances surrounding each award. To allow for this,
the Commission preliminarily believed that the four criteria afford the
Commission broad discretion to weigh a multitude of considerations in
determining the amount of any particular award. Depending upon the
facts and circumstances of each case, some of the considerations may
not be applicable or may deserve greater weight than others.
The permissible Commission considerations include, but are not
limited to:
The character of the enforcement action including whether
its subject matter is a Commission priority, whether the reported
misconduct involves regulated entities or fiduciaries, the type of CEA
violations, the age and duration of misconduct, the number of
violations, and the isolated, repetitive, or ongoing nature of the
violations;
The dangers to customers or others presented by the
underlying violations involved in the enforcement action including the
amount of harm or potential harm caused by the underlying violations,
the type of harm resulting from or threatened by the underlying
violations, and the number of individuals or entities harmed;
The timeliness, degree, reliability, and effectiveness of
the whistleblower's assistance;
The time and resources conserved as a result of the
whistleblower's assistance;
Whether the whistleblower encouraged or authorized others
to
[[Page 53189]]
assist the staff who might not have otherwise participated in the
investigation or related action;
Any unique hardships experienced by the whistleblower as a
result of his or her reporting and assisting in the enforcement action;
The degree to which the whistleblower took steps to
prevent the violations from occurring or continuing;
The efforts undertaken by the whistleblower to remediate
the harm caused by the violations including assisting the authorities
in the recovery of the fruits and instrumentalities of the violations;
Whether the information provided by the whistleblower
related to only a portion of the successful claims brought in the
covered judicial or administrative action or related action; \116\ and
---------------------------------------------------------------------------
\116\ As described elsewhere in these rules, if the information
provided by a whistleblower relates to only a portion of a
successful covered judicial or administrative action or related
action, the Commission proposes to look to the entirety of the
action (including all defendants or respondents, all claims, and all
monetary sanctions obtained) in determining whether the
whistleblower is eligible for an award and the total dollar amount
of sanctions on which the whistleblower's award will be based. Under
subparagraph (a) of Proposed Rule 165.9, the fact that a
whistleblower's information related to only a portion of the overall
action would be a factor in determining the amount of the
whistleblower's award. Thus, if the whistleblower's information
supported only a small part of a larger action, that would be a
reason for making an award based upon a smaller percentage amount
than otherwise would have been awarded.
---------------------------------------------------------------------------
The culpability of the whistleblower, including whether
the whistleblower acted with scienter, both generally and in relation
to others who participated in the misconduct.
These considerations are not listed in order of importance nor are
they intended to be all-inclusive or to require a specific
determination in any particular case.
Finally, subparagraph (b) to Proposed Rule 165.9 reiterated the
statutory prohibition in Section 23(c)(1)(B)(ii) of the CEA from taking
into consideration the balance of the Fund when making an award
determination.
2. Comments
The Commission received comment that the Rule should expressly
permit the Commission to deny an award when it determines that payment
of an award would be against public policy.\117\ One commenter, a
Senator, also expressed concern that excessive monetary incentives may
lead to misreporting causing investigative waste.\118\ The Senator also
suggested that the Commission should exercise discretion afforded the
Commission in Section 23(c)(1)(A) to reasonably limit the amount that
may be awarded to a single whistleblower in any one matter.
---------------------------------------------------------------------------
\117\ See letter from ABA.
\118\ See letter from Senator Carl Levin.
---------------------------------------------------------------------------
3. Final Rule
The Commission notes that the SEC, in promulgating its own final
whistleblower rules, added two additional discretionary factors to
consider in making award amount decisions: (1) ``whether the
whistleblower unreasonably delayed reporting the securities violations
(SEC Rule 240.21F-6(b)(2))''; and (2) whether the whistleblower
interfered or hindered internal compliance and reporting systems (SEC
Rule 240.21F-6(b)(3)). The Commission has amended the Rule to add such
factors in the interest of increasing transparency regarding the
Commission's award determination process, and to be consistent with the
statutory mandate in Section 23(c)(1)(B)(IV) of the CEA that the
Commission establish additional relevant factors per rule or
regulation. In addition, with respect to the Senator's comment, the
Rule now affords the Commission discretion regarding award
determinations to take into consideration ``[p]otential adverse
incentives from oversize awards''.\119\
---------------------------------------------------------------------------
\119\ Rule 165.9(a)(5).
---------------------------------------------------------------------------
J. Rule 165.10--Contents of Record for Award Determinations
In order to promote transparency and consistency, and also to
preserve a clear record for appellate review (under Proposed Rule
165.13) of Commission award determinations (under Proposed Rule 165.7),
Proposed Rule 165.10 set forth the contents of record for award
determinations relating to covered judicial or administrative actions
or related actions. Under the Proposed Rule, the record shall include:
required forms the whistleblower submits to the Commission, including
related attachments; other documentation provided by the whistleblower
to the Commission; the complaint, notice of hearing, answers and any
amendments thereto; the final judgment, consent order, or
administrative speaking order; the transcript of the related
administrative hearing or civil injunctive proceeding, including any
exhibits entered at the hearing or proceeding; and any other documents
that appear on the docket of the proceeding. Under the Proposed Rule,
the record shall also include statements by litigation staff to the
Commission regarding the significance of the information provided by
the whistleblower to the success of the covered judicial or
administrative action or related action; and the degree of assistance
provided by the whistleblower and any legal representative of the
whistleblower in a covered judicial or administrative action or related
action.
However, Proposed Rule 165.10(b) explicitly stated that the record
upon which the award determination under Proposed Rule 165.7 shall be
made shall not include any Commission pre-decisional or internal
deliberative process materials related to the Commission's or its
staff's determinations: (1) To file or settle the covered judicial or
administrative action; and/or (2) whether, to whom and in what amount
to make a whistleblower award. Further, the record upon which the award
determination under Proposed Rule 165.7 shall be made shall not include
any other entity's pre-decisional or internal deliberative process
materials related to its or its staff's determination to file or settle
a related action.
The Commission did not receive any comments on the contents of
record for award determinations. The Commission has considered the
issue and has decided to adopt Rule 165.10 as proposed, with two
modifications intended to improve clarity. First, the Final Rule
clarifies that the record shall not include documents protected under
the attorney-client privilege or the attorney work-product privilege.
Second, the ``statements by litigation staff'' provision has been
simplified to include ``[s]worn declarations (including attachments)
from the Commission's Division of Enforcement staff regarding any
matters relevant to the award determination.''
K. Rule 165.11--Awards Based Upon Related Actions
Proposed Rule 165.11 provided that the Commission, or its delegate,
may determine an award based on amounts collected in related actions
brought by appropriate Federal or state agencies, registered entities,
or SROs rather than on the amount collected in a covered judicial or
administrative action. Regardless of whether the Commission's award
determination is based on the Commission's covered judicial or
administrative action or a related action or actions, Rule 165.7 sets
forth the procedures for whistleblower award applications and
Commission award determinations.
The Commission received one comment regarding awards based upon
related actions. The commenter suggested that the Commission should
remove the potential for a whistleblower to recover from both the
Commission
[[Page 53190]]
and the SEC for providing each agency with the same information. This
commenter noted that the SEC will not make an award for a related
action, and that the Commission's provisions should be similar.\120\
---------------------------------------------------------------------------
\120\ See letter from FSR.
---------------------------------------------------------------------------
The Commission has considered the comment and has decided to adopt
Rule 165.11 as proposed, with one modification. Rule 165.11 tracks
Section 23(a)(5) of the CEA, and the payment of awards on related
actions is not within in the discretion of the Commission. Rule
165.11(a)(5) adds ``[a] foreign futures authority'' to the list of
authorities whose judicial or administrative actions could potentially
qualify as a ``related action.'' \121\
---------------------------------------------------------------------------
\121\ See 7 U.S.C. 26(a)(5), 26(h)(2)(C)(i)(VI).
---------------------------------------------------------------------------
L. Rule 165.12--Payment of Awards From the Fund, Financing Customer
Education Initiatives, and Deposits and Credits to the Fund
1. Proposed Rule
Proposed Rule 165.12 sets forth Commission procedures with respect
to the Fund to pay whistleblower awards, fund customer education
initiatives, and maintain appropriate amounts in the Fund.
Proposed Rule 165.12(c) provides that the Commission shall
undertake and maintain customer education initiatives. The initiatives
shall be designed to help customers protect themselves against fraud or
other violations of the CEA, or the rules or regulations thereunder.
The Commission shall fund the customer education initiatives, and may
utilize funds deposited into the Fund during any fiscal year in which
the beginning (October 1) balance of the Fund is greater than
$10,000,000.
The Commission limits discretion to finance customer education
initiatives to fiscal years in which the beginning (October 1) balance
of the Fund is greater than $10,000,000 in order to limit the
possibility that spending on customer education initiatives may
inadvertently result in the Commission operating the Fund in a deficit
and thereby delay award payments to whistleblowers.
2. Comments
The Commission received one comment that suggested Fund amounts be
used to educate the public about the rights of whistleblowers. The
comment suggests that the Commission publish materials that companies
can distribute to their employees that are simple and easy to
understand informing them of their rights as a potential
whistleblower.\122\ The Commission did not receive any comments
regarding the Commission's delegation of authority to the Office of the
Executive Director.
---------------------------------------------------------------------------
\122\ See letter from NCCMP.
---------------------------------------------------------------------------
3. Final Rule
The Commission has considered the comment received regarding the
use of the Fund. The Commission has established a working group to make
suggestions regarding customer education initiatives. The Commission
has decided to adopt Rule 165.12 with revisions. Specifically, the
Final Rule includes revisions to reflect the Commission's intent to
undertake and maintain customer education initiatives through an Office
of Consumer Outreach. Because Rule 165.12 is a rule of the Commission's
``organization, procedure, or practice,'' the Commission is not
presenting these revisions for notice and comment.\123\
---------------------------------------------------------------------------
\123\ See 5 U.S.C. 553.
---------------------------------------------------------------------------
M. 165.13--Appeals
1. Proposed Rule
Section 23(f) of the CEA provided for rights of appeal of Final
Orders of the Commission with respect to whistleblower award
determinations.\124\ Subparagraph (a) of Proposed Rule 165.13 tracks
this provision and describes claimants' rights to appeal. Claimants may
appeal any Commission final award determination, including whether, to
whom, or in what amount to make whistleblower awards, to an appropriate
court of appeals within thirty (30) days after the Commission's final
order of determination.
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\124\ See Section 23(f) of the CEA, 7 U.S.C. 26(f).
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Subparagraph (b) of Proposed Rule 165.13 designates the materials
that shall be included in the record on any appeal. Those materials
include: The Contents of Record for Award Determinations, as set forth
in Proposed Rule 165.10, and any Final Order of the Commission, as set
forth in Rule 165.7(e).
2. Comments
The Commission received one comment regarding appeals.\125\ This
commenter suggested that a whistleblower who provides information to
the Commission that the Commission subsequently decides not to pursue
should have the right to appeal to the Commission's Office of the
Inspector General the decision not to pursue. This commenter reasons
that otherwise legitimate claims that could expose violations could be
dismissed without appropriate investigation.
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\125\ See letter from NCCMP.
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3. Final Rule
After considering the comment received, the Commission has decided
to adopt Rule 165.13 as proposed. The Final Rule tracks Section 23(f)
of the CEA, which states that appeals of Commission decisions regarding
whistleblower awards may be made to the appropriate U.S. Circuit Court
of Appeals. However, although Section 23(f) provides for appeals of
Commission determinations of whether, to whom, or in what amount to
make an award, it does not grant any right to appeal the Commission's
prosecutorial discretion, including the Commission's decisions to: open
or close an investigation; file an enforcement action, including the
Commission's determination of the violations charged; and settling an
enforcement action.
N. Rule 165.14--Procedures Applicable to the Payment of Awards
1. Proposed Rule
Proposed Rule 165.14 addressed the timing for payment of an award
to a whistleblower. Any award made pursuant to the rules would be paid
from the Fund established by Section 23(g) of the CEA.\126\
Subparagraph (a) provided that a recipient of a whistleblower award
will be entitled to payment on the award only to the extent that a
monetary sanction is collected in the covered judicial or
administrative action or in a related action upon which the award is
based. This requirement is derived from Section 23(b)(1) of the
CEA,\127\ which provides that an award is based upon the monetary
sanctions collected in the covered judicial or administrative action or
related action.
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\126\ 7 U.S.C. 26(g).
\127\ 7 U.S.C. 26(b)(1).
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Subparagraph (b) stated that any payment of an award for a monetary
sanction collected in a covered judicial or administrative action shall
be made within a reasonable period of time following the later of
either the completion of the appeals process for all whistleblower
award claims arising from the covered judicial or administrative
action, or the date on which the monetary sanction is collected.
Likewise, the payment of an award for a monetary sanction collected in
a related action shall be made within a reasonable period of time
following the later of either the completion of the appeals process for
all whistleblower award claims arising from the related action, or the
date on which the monetary sanction is collected. This
[[Page 53191]]
provision is intended to cover situations where a single action results
in multiple whistleblowers claims. Under this scenario, if one
whistleblower appeals a Final Order of the Commission relating to a
whistleblower award determination, then the Commission would not pay
any awards in the action until that whistleblower's appeal has been
concluded, because the disposition of that appeal could require the
Commission to reconsider its determination and thereby affect all
payments for that covered judicial or administrative action or related
action.
Subparagraph (c) of Proposed Rule 165.14 described how the
Commission will address situations where there are insufficient amounts
available in the Fund to pay the entire amount of an award to a
whistleblower or whistleblowers within a reasonable period of time from
when payment should otherwise be made. In this situation, the
whistleblower or whistleblowers will be paid when amounts become
available in the Fund, subject to the terms set forth in proposed
subparagraph (c). Under proposed subparagraph (c), where multiple
whistleblowers are owed payments from the Fund based on awards that do
not arise from the same Notice or resolution of a related action,
priority in making payment on these awards would be determined based
upon the date that the Final Order of the Commission is made. If two or
more of these Final Orders of the Commission are entered on the same
date, then those whistleblowers owed payments will be paid on a pro
rata basis until sufficient amounts become available in the Fund to pay
their entire payments. Under proposed subparagraph (c)(2), where
multiple whistleblowers are owed payments from the Fund based on awards
that arise from the same Notice or resolution of a related action, they
would share the same payment priority and would be paid on a pro rata
basis until sufficient amounts become available in the Fund to pay
their entire payments.
2. Comments and Final Rule
The Commission did not receive any comments regarding procedures
applicable to the payment of awards. The Commission is adopting Rule
165.14 as proposed. The Final Rule tracks the relevant provisions of
Section 23 of the CEA.
O. Rule 165.15--Delegations of Authority
Proposed Rule 165.15 included the Commission's delegations to the
Executive Director to take certain actions to carry out this Part 165
of the Rules and the requirements of Section 23(g) of CEA.
Specifically, Proposed Rule 165.15 delegated authority to the Executive
Director, or a designee, upon the concurrence of the General Counsel
and the Director of the Commission's Division of Enforcement, to make
both deposits into and award payments out of the Fund.
The Commission did not receive any comments regarding delegations
of authority. The Commission is adopting Rule 165.15 with revisions to
address internal Commission organizational and procedural issues.
Specifically, the Final Rule includes revisions to reflect the
Commission's delegation to a Whistleblower Office the authority to
administer the Commission's whistleblower program. The Final Rule also
provides that the Commission will exercise its authority to make
whistleblower award determinations through a delegation of authority to
a panel that shall be composed of three of the Commission's Offices or
Divisions. Under Rule 165.15, the Commission's Executive Director will
select the members of the ``Whistleblower Award Determination Panel.''
Because Rule 165.15 is a rule of the Commission's ``organization,
procedure, or practice,'' the Commission is not presenting these
revisions for notice and comment.\128\
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\128\ See 5 U.S.C. 553.
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P. Rule 165.16--No Immunity and Rule 165.17--Awards to Whistleblowers
Who Engage in Culpable Conduct
1. Proposed Rules
Proposed Rule 165.16 provided notice that the provisions of Section
23 of the CEA do not provide immunity to individuals who provide
information to the Commission relating to a violation of the CEA. Some
whistleblowers who provide original information that significantly aids
in detecting and prosecuting sophisticated manipulation or fraud
schemes may themselves be participants in the scheme who would be
subject to Commission enforcement actions. While these individuals, if
they provide valuable assistance to a successful action, will remain
eligible for a whistleblower award, they will not be immune from
prosecution. Rather, the Commission will analyze the unique facts and
circumstances of each case in accordance with its Enforcement Advisory,
``Cooperation Factors in Enforcement Division Sanction
Recommendations'' to determine whether, how much, and in what manner to
credit cooperation by whistleblowers who have participated in
misconduct.\129\
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\129\ See http://www.cftc.gov/idc/groups/public/@cpdisciplinaryhistory/documents/file/enfcooperation-advisory.pdf.
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The options available to the Commission and its staff for
facilitating and rewarding cooperation ranges from taking no
enforcement action to pursuing charges and sanctions in connection with
enforcement actions.
Whistleblowers with potential civil liability or criminal liability
for CEA violations that they report to the Commission remain eligible
for an award. However, pursuant to Section 23(c)(2)(B) of the CEA,\130\
if a whistleblower is convicted of a criminal violation related to the
judicial or administrative action, they are not eligible for an award.
Furthermore, if a defendant or respondent in a Commission action or a
related action is ordered to pay monetary sanctions in a civil
enforcement action, Proposed Rule 165.17 stated that the Commission
will not count the amount of such monetary sanctions toward the
$1,000,000 threshold in considering an award payment to such a
defendant or respondent in relation to a covered judicial or
administrative action, and will not add that amount to the total
monetary sanctions collected in the action for purposes of calculating
any payment to the culpable individual. The rationale for this
limitation is to prevent wrongdoers from financially benefiting from
their own misconduct, and ensures equitable treatment of culpable and
non-culpable whistleblowers. For example, without such a prohibition, a
whistleblower that was the leader or organizer of a fraudulent scheme
involving multiple defendants that resulted in total monetary sanctions
of $1,250,000, which would exceed the $1,000,000 minimum threshold
required for making an award, could potentially be eligible for an
award even though he personally was ordered to pay $750,000 of those
monetary sanctions. Under similar circumstances, a non-culpable
whistleblower would be deemed ineligible for an award if they reported
a CEA violation that resulted in monetary sanctions of less than
$1,000,000. The Proposed Rule would prevent such inequitable treatment.
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\130\ 7 U.S.C. 26(c)(2)(B).
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2. Comments
Many commenters suggested that the Commission should not allow
whistleblowers with varying degrees of culpability to be eligible for
an
[[Page 53192]]
award.\131\ These comments are discussed under Rule 165.6 in the
context of discussing whistleblowers ineligible for an award.\132\
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\131\ See letters from SIFMA/FIA, and U.S. Chamber of Commerce.
\132\ See above, Section II.F.
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3. Final Rule
Upon consideration of the comments, the Commission has decided to
adopt Rules 165.16 and 165.17 as proposed. These rules track the
Commission's authority to deny whistleblower awards to individuals who
are criminally culpable as stated in Section 23(c)(2)(B). As discussed
above with respect to Rule 165.9, the Commission will consider ``the
culpability or involvement of the whistleblower in matters associated
with the Commission's action or related actions'' in determining the
amount of a whistleblower award.\133\
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\133\ See Section II.I, above, discussing Rule 165.9(c)(1).
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Q. Rule 165.18--Staff Communications With Whistleblowers From
Represented Entities
1. Proposed Rule
Proposed Rule 165.18 clarified the staff's authority to communicate
directly with whistleblowers who are directors, officers, members,
agents, or employees of an entity that has counsel, and who have
initiated communication with the Commission relating to a potential
violation of the CEA. The Proposed Rule made clear that the staff is
authorized to communicate directly with these individuals without first
seeking the consent of the entity's counsel.
Section 23 of the CEA evinces a strong Congressional policy to
facilitate the disclosure of information to the Commission relating to
potential CEA violations and to preserve the confidentiality of those
who do so.\134\ This Congressional policy would be significantly
impaired were the Commission required to seek the consent of an
entity's counsel before speaking with a whistleblower who contacts the
Commission and who is a director, officer, member, agent, or employee
of the entity. For this reason, Section 23 of the CEA implicitly
authorizes the Commission to communicate directly with these
individuals without first obtaining the consent of the entity's
counsel.
---------------------------------------------------------------------------
\134\ See Section 23(b)-(d) and (h) of the CEA, 7 U.S.C 26(b)-
(d), (h).
---------------------------------------------------------------------------
The Commission included this authority in the Proposed Rule to
promote whistleblowers' willingness to disclose potential CEA
violations to the Commission by reducing or eliminating any concerns
that whistleblowers might have that the Commission is required to
request consent of the entity's counsel and, in doing so, might
disclose their identity. The Commission intended the Proposed Rule to
clarify that, in accordance with American Bar Association Model Rule
4.2, the staff is authorized by law to make these communications.\135\
American Bar Association Model Rule 4.2 provides as follows:
\135\
In representing a client, a lawyer shall not communicate about
the subject of the representation with a person the lawyer knows to
be represented by another lawyer in the matter, unless the lawyer
has the consent of the other lawyer or is authorized to do so by law
---------------------------------------------------------------------------
or a court order.
Model Rules of Prof'l Conduct R. 4.2 (emphasis added). Under this
provision, for example, the Commission could meet or otherwise
communicate with the whistleblower privately, without the knowledge or
presence of counsel or other representative of the entity.
2. Comments
The ABA strongly disagreed with the Commission's view that Part 165
authorized the Commission to bypass state bar ethics rules.\136\ The
ABA also expressed concern that Proposed Rule 165.18 may have profound
implications with respect to the preservation of an entity's attorney-
client privilege and information protected by the work-product
doctrine.\137\ The ABA stated:
\136\ See letter from ABA.
\137\ See letter from ABA.
[W]e strongly disagree with the Commission's view that Part 165
authorized the Commission to bypass state bar ethics rules. In our
view, Proposed Rule 165.18 may have profound implications with
respect to the preservation of an entity's attorney-client privilege
and information protected by the work-product doctrine * * *. The
Commission would justify this position by viewing the discussions
with such a person as having been `authorized by law.' However, it
is not clear to us as to whether a Commission Rule (as opposed to a
statute) can supersede the State Bar provisions governing attorney
conduct * * *. Proposed Rule 165.18 deals not with the initial
communication by the employee, but instead with responsive
communications by the staff. Having had the benefit of a
whistleblower's initial communication, we see no reasonable basis
not to require the staff to communicate with entity counsel prior to
---------------------------------------------------------------------------
any further communications.
The ABA also advised, in the alternative, that if the Commission
retains Proposed Rule 165.18, it should be revised to include
procedures governing staff communications to ensure that attorney-
client privileges and the information protected by attorney work-
product doctrine are not jeopardized.\138\ The ABA elaborated that,
``information the CFTC might seek from an employee, and which the
employee might disclose, might have derived from privileged
communications the employee or others within the organization might
have had with the entity's counsel.'' It was also suggested that the
right to waive the privilege in such circumstances would belong to the
entity, not to any single employee, and that the ability of Commission
staff to communicate with an employee without first seeking the consent
of the entity's counsel may affect the entity's ability to claim
privilege with respect to such matters.'' Finally, the ABA suggested
that ``[h]aving had the benefit of a whistleblower's initial
communication, we see no reasonable basis not to require the [CFTC]
staff to communicate with entity counsel prior to any further
communications,'' because in many cases CFTC communications with entity
counsel preceding further discussions with a whistleblower could assist
the CFTC's investigative efforts. Another commenter recommended that
Proposed Rule 165.18 be clarified to provide that ``if the commission
remains in contact with a whistleblower during the course of an
entity's internal investigation, it cannot seek from the whistleblower
information about counsel's views and advice (or the privileged
information and discussions) that the whistleblower obtains during that
investigation.'' \139\ Another commenter warned that ``[t]he
communications contemplated by Section 165.18 of the Proposed Rules run
afoul of ABA Model Rule 4.2 * * *'' and recommended that the Commission
``should withdraw Section 165.18 of the Proposed Rules.'' \140\
---------------------------------------------------------------------------
\138\ See letter from ABA.
\139\ See letter from SIFMA/FIA.
\140\ See letter from FSR.
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3. Final Rule
After considering the comments received, the Commission has decided
to adopt Rule 165.18, with modifications. The Final Rule authorizes the
staff to directly communicate with directors, officers, members,
agents, or employees of an entity that has counsel where the individual
first initiates communication with the Commission as a whistleblower;
the staff is authorized to have such direct communication without the
consent of the entity's counsel. The Commission believes that the Rule
implements congressional
[[Page 53193]]
intent and meets the ``authorized by law'' exception to ABA Model Rule
of Professional Conduct 4.2 and similar state bar rules that might
otherwise prohibit direct communication.
With respect to the ABA's comment that ``it is not clear to [the
ABA] as to whether a Commission Rule (as opposed to a statute) can
supersede the State Bar provisions governing attorney conduct'', the
Commission does not believe that Final Rule 165.18 ``supersedes'' state
bar provisions. Rather, the Commission believes that by granting the
Commission rulemaking authority pursuant to Section 23(i) of the CEA to
implement an effective whistleblower program, Congress conferred upon
the Commission the authority to permit its staff to have direct
communications with whistleblowers without seeking consent of an
entity's counsel. Final Rule 165.18, therefore, is intended to and does
satisfy the ``authorized by law'' exception to the rule that would
otherwise prohibit an attorney from communicating directly with an
individual about a matter when the individual is represented by counsel
in the matter.\141\
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\141\ The Commission is mindful that the SEC has reached the
same conclusion with respect to the SEC's Dodd-Frank Act
whistleblower provision. See SEC Rule 240.21F-17(b) (''If you are a
director, officer, member, agent, or employee of an entity that has
counsel, and you have initiated communication with the Commission
relating to a possible securities law violation, the staff is
authorized to communicate directly with you regarding the possible
securities law violation without seeking the consent of the entity's
counsel.'').
---------------------------------------------------------------------------
The Commission disagrees with any suggestion that the Commission
does not have the authority to give such permission. The authority is
derived from Congress's direction in Section 23(i) of the CEA to
promulgate rules to create an effective and robust whistleblower
program, and to preserve the confidentiality of whistleblowers.\142\
The Commission believes that it would undermine Congressional intent if
staff were prohibited from communicating directly with a whistleblower
merely because the whistleblower was employed by an entity that was
represented by counsel. Not only would such a prohibition allow a state
bar rule to trump a federal statute and an independent federal agency's
rule, but such a blanket prohibition would have the perverse result of
giving an entity the option to decide whether a whistleblower should be
allowed to report the entity's misconduct to the Commission. Giving an
entity the right to stifle a whistleblower plainly is not what Congress
intended. Nor would it be consistent with congressional intent to
require staff to identify a whistleblower to an entity, which would be
necessary if the staff were required to seek the entity's counsel
consent to speak to the whistleblower. Such a requirement could deter
whistleblowers from coming forward, which would frustrate congressional
purpose.
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\142\ Cf. ABA Formal Ethics Opinion 95-396 (1995) (Rule 4.2's
exception permitting communication ``authorized by law'' is
satisfied by ``a constitutional provision, statute or court rule,
having the force and effect of law, that expressly allows a
particular communication to occur in the absence of counsel.'');
see, e.g., Wilkerson v. Brown, 995 P.2d 393 (Kan. Ct. App. 1999)
(statutes allowing for service of demands and offers of judgment on
opposing party trigger ``authorized by law'' exception to anti-
contact rule); Lewis v. Bayer A.G., No. 2353 Aug. Term 2001, 2002 WL
1472339 (Pa. C.P. June 12, 2002) (drug company's mailings to
putative members of plaintiff class of patients who experienced
adverse drug reactions were sent pursuant to FDA regulations and
thus were ``authorized by law'').
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Moreover, any state bar prohibition on attorney contact with an
employee ultimately is premised on the notion that an entity-employer's
counsel is by extension the employee's counsel. However, a lawyer for
an entity cannot ethically also represent a whistleblower-employee on
the same matter when the whistleblower's interests and the entity's
interests are in conflict, such as when a whistleblower wants to report
an entity's misconduct to the Commission.\143\ Based on the same
reasoning, Rule 165.18 does not authorize Commission staff to have
direct communication with a whistleblower who is personally represented
by an attorney without the consent of that attorney.
---------------------------------------------------------------------------
\143\ See, e.g., ABA Model Rule 1.7(a) (providing, in general,
that ``a lawyer shall not represent a client if the representation
involves a concurrent conflict of interest. A concurrent conflict of
interest exists if * * * the representation of one client will be
directly adverse to another client'').
---------------------------------------------------------------------------
Authorizing the staff to have direct communication with a
whistleblower employed by a represented entity does not mean that the
staff should be the first to initiate such contact. For the sake of
clarity, the Commission is explicitly modifying the proposed rule to
grant authority only when the whistleblower first initiates contact
with the staff. Thereafter, all direct communications are ``authorized
by law.''
In addition, the Commission acknowledges some commenters' concern
that direct communication with whistleblowers raises the possibility of
the staff's inadvertent receipt of information covered by an entity's
attorney-client privilege or the attorney work product protection.
These concerns are valid. This Rule does not authorize staff to access
information protected by the attorney-client privilege or attorney work
product protection. Accordingly, when invoking Rule 165.18, the staff
shall undertake reasonable best efforts to avoid receiving such
information.
R. Rule 165.19--Nonenforceability of Certain Provisions Waiving Rights
and Remedies or Requiring Arbitration of Disputes
Consistent with Congressional intent to protect whistleblowers from
retaliation as reflected in Section 23(h) of the CEA, Proposed Rule
165.19 provided that the rights and remedies provided for in Part 165
of the Commission's Regulations may not be waived by any agreement,
policy, form, or condition of employment including by a predispute
arbitration agreement. No pre-dispute arbitration agreement shall be
valid or enforceable, if the agreement requires arbitration of a
dispute arising under this Part.
The Commission did not receive any comments on Proposed Rule
165.19. The Commission is adopting Rule 165.19 as proposed. This rule
tracks Section 23(n) of the CEA and is in keeping with congressional
intent to make waiver of certain rights and remedies of whistleblowers
nonenforceable, as well as any predispute arbitration agreement if the
agreement requires arbitration of a dispute arising under Part 165.
S. Internal Reporting and Harmonization
The Proposed Rules did not require individuals to report potential
CEA violations to their employers. However, the Proposed Rules did
include provisions that would allow employees to claim an award from
the Commission if they reported the information to their employer and
the employer reported that information to the Commission.\144\ Numerous
commenters requested that the Commission either make internal reporting
mandatory for whistleblowers, or at least provide individuals with
incentives to make internal reports.
---------------------------------------------------------------------------
\144\ See Proposed Rule 165.2(l).
---------------------------------------------------------------------------
Several commenters recommended that the Commission adopt a
``provision requiring internal reporting by all employees as a
condition of eligibility for a whistleblower award.'' \145\ Some
commentators suggest that the only exception to internal reporting
should be when the whistleblower can prove that the employer's internal
system is
[[Page 53194]]
inadequate.\146\ One commenter suggested that ``[t]he rules should
provide that an internal reporting requirement prior to going to the
CFTC would not apply where it would be futile, for example where
individuals responsible for investigating complaints were themselves
involved in the alleged violations,'' and ``if the entity has an
effective internal compliance reporting system and internal reporting
would not be futile, the entity should be allowed at least 180 days to
complete its own internal investigation before the whistleblower can
report the matter to the CFTC.'' \147\
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\145\ See letter from NSCP; see also letters from EEI, ICI, ACC,
Equal Employment Advisory Council (``EEAC''), U.S. Chamber of
Commerce, ABA, and FSR.
\146\ See letter from U.S. Chamber of Commerce.
\147\ See letter from SIFMA/FIA.
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Other commentators cautioned against making internal reporting
mandatory. One commenter stated ``[r]equiring that a whistleblower
first advance his allegations internally to officials who may be the
architects of the scheme places that individual's livelihood in peril.
* * * In addition, requiring that whistleblowers report internally
first in all situations can imperil law enforcement ends, by providing
opportunities to destroy or conceal evidence, or otherwise thwarting
the CFTC's investigation of alleged wrongdoing.'' \148\ This commenter
also expressed belief that ``the Commission's approach of encouraging
whistleblowers to first report violations internally * * * without
penalizing those who do not report, strikes an appropriate balance.''
\149\
---------------------------------------------------------------------------
\148\ See letter from TAF.
\149\ See letter from TAF.
---------------------------------------------------------------------------
Another commenter advised that whistleblowers should be given the
option to report problems directly to the Commission, ``especially if
they have reason to believe that their entity's internal compliance
program will not do an adequate job of investigating the wrongdoing and
taking corrective action.'' \150\ This commenter also stated that to
require internal reporting would be contrary to the meaning and intent
of Section 23 of the CEA, would have a chilling effect on the
whistleblower program and would put whistleblowers in harm's way.\151\
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\150\ See letter from POGO.
\151\ See letter from POGO.
---------------------------------------------------------------------------
In the alternative to mandatory internal reporting, several
commenters suggested that the Commission make internal reporting a
positive criterion in an award determination.\152\ For example, one
commenter stated that the Commission ``[s]hould make explicit that a
whistleblower will receive credit in the calculation of award amount
when the [whistleblower] uses a entity's internal reporting
mechanism.'' \153\ In addition, this commenter suggested that the Final
Rule ``should provide strong financial disincentives against
individuals who violate entity rules requiring them to report
misconduct internally.'' \154\ Taking another tack, this commenter
suggested that the Commission deem ineligible for an award any
individual who refuses to cooperate with the entity's internal
investigation, or who provides inaccurate or incomplete information or
otherwise hinders such an investigation.\155\
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\152\ See letter from FSR at 8; see also letters from NSCP at 3-
7, 10, Senator Carl Levin at 3, U.S. Chamber of Commerce at 14,
SIFMA/FIA at 2-3, 6; cf. letter from FSR at 9 (suggesting that
whistleblowers who fail to report internally ``without clear,
appropriate justification'' be limited, in general, to the
``statutory minimum of 10 percent of the total monetary sanctions
collected in the action.'').
\153\ See letter from SIFMA/FIA.
\154\ See letter from SIFMA/FIA.
\155\ See letter from SIFMA/FIA.
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Also, several commenters pointed out that the SEC's whistleblower
rules incentivize internal reporting through positive consideration of
internal reporting in award determinations,\156\ and suggested that the
Commission's whistleblower program be harmonized with that of the SEC
(harmonization to be discussed below). The SEC's final whistleblower
rules include factors that may increase a whistleblower's award.\157\
---------------------------------------------------------------------------
\156\ See, e.g., letter from SIFMA/FIA.
\157\ See SEC Rule 240.21F-6(a)(4) (``Criteria For Determining
Amount of Award'').
---------------------------------------------------------------------------
The Commission declines to mandate that whistleblowers report
potential violations internally either before or concurrent to
reporting to the Commission. The Commission believes that to require
internal reporting could raise the risk of retaliation, and have a
chilling effect on whistleblowers who are inclined to come forward and
bring information to the attention of the Commission.\158\ For these
same reasons, the Commission has decided not to deem lack of
cooperation with an internal investigation a basis to render a person
ineligible for an award.
---------------------------------------------------------------------------
\158\ See letter from POGO.
---------------------------------------------------------------------------
Nonetheless, the Commission recognizes that internal whistleblower,
compliance and legal systems can contribute to detecting, deterring and
preventing misconduct including violations of the CEA, goals that are
consistent with the Commission's mission. Many entities properly
encourage their employees to use such functions to report misconduct
internally. By establishing financial incentives to report misconduct
to the Commission, the Commission does not want to discourage employees
from making internal reports when appropriate. The Commission
recognizes that internal compliance and reporting systems ought to
contribute to the goal of detecting, deterring and preventing
misconduct, including CEA violations, and does not want to discourage
employees from using such systems when they are in place.
The Commission is striking an appropriate balance between the
interests of maintaining strong internal reporting functions and the
interests of the Commission's whistleblower program by tailoring the
Final Rules in two respects. First, the Final Rules state that the
Commission will consider the whistleblower's decision to report
internally as a potentially positive factor in the Commission's award
determination. Whether the decision to report internally increases the
amount of the award will depend on the facts and circumstances. If the
whistleblower chooses not to report internally, his award determination
will be unaffected by that decision. Indeed, the Commission recognizes
that a whistleblower may reasonably believe that reporting internally
could risk retaliation or be counterproductive to preventing and/or
remedying misconduct; but such a whistleblower should be no less
incentivized to report to the Commission. Second, if a whistleblower
reports information internally within an entity, according to the Final
Rules the Commission will attribute to the whistleblower all
information later reported by the entity to the Commission, including
any additional information reported by the entity that was not part of
the whistleblower's internal report.
In response to this possibility, the Commission has tailored the
Final Rules to provide whistleblowers who are otherwise pre-disposed to
report internally, but who may also be affected by financial
incentives, with additional economic incentives to continue to report
internally. Specifically, after considering the comments received, the
Commission has decided to revise and adopt the Proposed Rules to
incentivize internal reporting, as discussed throughout this Release,
specifically by providing whistleblowers who report internally with:
(a) Positive weight in Commission award determinations; \159\ and (b)
the benefit of the employer's
[[Page 53195]]
investigation.\160\ The Commission has decided not to deem ineligible a
person for an award who does not cooperate with an internal
investigation because the Commission has previously indicated that the
Commission will take into consideration the degree to which a
whistleblower took steps to prevent the violations from occurring, or
continuing, when making an award determination.\161\
---------------------------------------------------------------------------
\159\ See Rule 165.9 Criteria for determining amount of award.
\160\ See Rule 165.2(i) (``Information that led to successful
enforcement'').
\161\ See 75 FR at 75739.
---------------------------------------------------------------------------
Commission staff has consulted with SEC staff regarding drafting of
rules to implement the Commission's and SEC's respective Dodd-Frank Act
whistleblower provisions, Section 748 (Commodity Whistleblower
Incentives and Protection) and Section 922 (Whistleblower Protection).
Several commenters noted that some companies may be subject to both
whistleblower programs, and to reduce uncertainty and cost to these
companies the respective whistleblower programs should be as uniform as
possible.\162\ Wherever appropriate and consistent with the underlying
statutory mandate in Section 23 of the CEA, the Commission has
endeavored to harmonize its whistleblower rules with those of the SEC.
---------------------------------------------------------------------------
\162\ See letters from NSCP at 2, ABA at 4, ICI at 1, SIFMA/FIA
at 14.
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However, the CFTC's Proposed Rules and SEC's Final Rules are
similar but not identical due to a number of factors, including the
following: (1) While similar, the provisions of the Sections 748 and
922 are not identical; (2) certain terms in the SEC's statutory
provision are either defined terms under the Securities Exchange Act of
1934 or are terms of art under SEC case law, and there is no comparable
CFTC precedent; (3) unlike the CFTC, the SEC has an existing
whistleblower program for insider trading violations that was
established under Section 21A(e) of the Securities Exchange Act of
1934, 15 U.S.C. 78u-1(e); and (4) also unlike the CFTC, the SEC has
existing obligations for persons to report violations to it (see, e.g.,
Section 10A of the Securities Exchange Act of 1934, 15 U.S.C. 78j-1
(establishing requirements and procedure for a ``registered public
accounting firm [that] detects or otherwise becomes aware of
information indicating that an illegal act (whether or not perceived to
have a material effect on the financial statements of the issuer) has
or may have occurred'' to report such illegal act to management, board
of directors, and the SEC) (alteration in original)).
III. Administrative Compliance
A. Cost-Benefit Considerations
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its action before promulgating a regulation.\163\
Furthermore, such costs and benefits shall be evaluated in light of the
following five considerations: (1) Protection of market participants
and the public; (2) efficiency, competitiveness, and financial
integrity of futures markets; (3) price discovery; (4) sound risk
management practices; and (5) other public interest considerations. The
Commission may in its discretion give greater weight to any one of the
five enumerated areas depending upon the nature of the regulatory
action.\164\
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\163\ 7 U.S.C. 19(a).
\164\ See, e.g., Fisherman's Doc Co-op., Inc v. Brown, 75 F.3d
164 (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336
(D.C. Cir. 1985) (noting that an agency has discretion to weigh
factors in undertaking cost-benefit analysis).
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The Final Rules implement Section 23 of the CEA which requires the
Commission, subject to certain requirements, to pay eligible
whistleblowers a monetary award for voluntarily providing original
information about violations of the CEA leading to a successful
enforcement action. The Final Rules define the key terms, specify
procedures for the submission and handling of original information, and
enumerate procedures for consideration and payment of awards including
appeals.
Many of the Final Rules are mandated by section 748 of the Dodd-
Frank Act, leaving the Commission with little or no discretion to
consider any alternatives where the statute prescribes particular
procedures. Therefore, the Commission's final regulations adhere
closely to the enabling language of the statute. For example, the final
regulations implement, among other provisions, the statutory
requirement that, if all preconditions are met, the Commission must pay
an award to one or more whistleblowers in an aggregate amount of not
less than 10 percent and not more than 30 percent of what has been
collected of the monetary sanctions imposed in the Commission's action
or related actions. Another example is the statutory requirement that
anonymous whistleblowers must be represented by counsel when making a
claim for a whistleblower award. To the extent that the Commission was
left with discretion under section 748 of the Dodd-Frank Act, the
Commission exercised that discretion with consideration of minimizing
the potential costs while maintaining fidelity to the Congressional
intent behind section 748 of the Dodd-Frank Act.
The Commission has considered the costs and benefits of its
regulations as part of the deliberative rulemaking process, and
discussed them throughout the preamble. The Commission generally views
the costs-benefits section of this Final Rulemaking to be an extension
of that discussion. Paperwork Reduction Act related costs are included
in the overall compliance costs considered with respect to Final Rule
165.
The comments that the Commission received regarding costs and
benefits can be categorized under three major topics. Broadly speaking,
the comments assert that (1) Employers and the CFTC will face increased
costs because the Final Rule does not contain a requirement that a
whistleblower first report an alleged CEA violation internally to the
entity committing the alleged offense; (2) firms regulated by both the
CFTC and the SEC will face increased costs due to the lack of
regulatory harmonization between the CFTC and SEC whistleblower rules;
and (3) potential whistleblowers will face costs excessive procedural
burdens under the rules.
A discussion of the comments on each topic and the Commission's
response to those comments in light of the five public interest
considerations follows.
1. Costs to Employers and the Commission Associated With the Lack of an
Internal Reporting Requirement
Three commenters \165\ commented specifically on the cost-benefit
section of the Proposed Rules, stating that the cost-benefit section of
the Proposed Rules only described costs to whistleblowers and did not
describe costs to employers and the Commission that would arise under
the Proposed Rules. One commenter stated that the anti-retaliation
provision would lead to false or spurious whistleblower claims and that
firms and the Commission would incur significant costs to evaluate
these claims.\166\ Another commenter stated that two types of costs to
employers would be incurred by not requiring whistleblowers to report
to the firm's compliance department.\167\ According to that commenter,
the costs of responding to Commission investigations exceed the costs
of internal investigations. In addition, the
[[Page 53196]]
commenter stated that the lack of an internal reporting requirement
would give rise to meritless complaints which would be costly to
investigate. Further, though not specifically enumerated in its
analysis of the cost-benefit section, that commenter stated that the
proposed rule would likely result in slower identification,
investigation, and potentially remediation by employers of alleged
violations. Another commenter also stated that the lack of an internal
reporting requirement would increase employer costs.\168\ The common
theme in the above cost-benefit comments, as well as other more general
cost comments submitted by several commenters \169\ focused on the
potential damage to existing compliance systems without an internal
reporting requirement. While not specifically commenting on the cost-
benefit section of the Proposed Rules, several commenters noted
increased legal, investigative, and remedial costs to firms and
increased costs to and use of resources by the Commission.\170\ One of
the commenters expanded upon potential costs and negative consequences
of the lack of a rule requiring, at a minimum, concurrent reporting to
the firm. This commenter stated that ``a failure or delay in the
communication of whistleblower reports of potential violations to these
entities may reduce the entity's ability of their independent
accountants to rely on the efficacy of an entity's internal control
systems and could adversely impact the entity's and independent
accountants' evaluations of internal control over financial
reporting.\171\ It could have significant negative consequences for
investors, reporting entities, and the audit process alike.'' These
concerns are addressed below in the context of the above mentioned
Section 15(a) considerations.
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\165\ See letters from ABA, EEI, and U.S. Chamber of Commerce.
\166\ See letter from ABA.
\167\ See letter from EEI.
\168\ See letter from U.S. Chamber of Commerce.
\169\ See letters from SIFMA/FIA, EEAC, Working Group, AICPA,
and NSCP.
\170\ See letters from NSCP, Working Group, EEAC and AICPA.
\171\ See letter from AICPA.
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Considerations of Protection of Market Participants and the Public
The Commission believes that the Final Rules implement the
statutory mandate and serve the purpose of protecting market
participants and the public. The statute does not require
whistleblowers to report violations through an entity's internal
reporting process. To impose such a requirement may be inconsistent
with Congressional intent in establishing the whistleblower program.
Specifically, the Commission believes that this potential alternative
would impose substantial costs and burdens on whistleblowers, victims
of CEA violations, market participants, and the public. Such a rule
could prevent or deter whistleblowers from making legitimate complaints
out of fear of reprisal from their employer. Consequently, some
violations may never be brought to the attention of the Commission,
which would prevent the Commission from bringing actions against
violators of the CEA. A rule requiring internal reporting could
therefore deprive victims of restitution and could deprive market
participants and the public of the benefits associated with detection,
prosecution, and deterrence of such violations of the CEA. Thus, the
Commission believes that the overall cost of an internal reporting
requirement and the attendant risks of undetected violations are
greater than the cost to firms subject to a potential whistleblower
referral. Indeed, if Congress thought such a requirement was necessary,
Congress could have incorporated such a provision in Section 748 of the
Dodd Frank Act. Regarding the comment that the anti-retaliation
provision of Section 748 would lead to more meritless complaints, the
Commission notes that Section 748 of the Dodd-Frank Act prohibits
retaliation against whistleblowers for any lawful act done by the
whistleblower. Because the Final Rules implement this statutory
mandate, the commenter did not provide any basis for claiming that the
language of the proposed rule will cause such consequences under the
statutory provision.
The whistleblower program is distinct from and does not undermine
or require any changes to any entity's existing compliance systems.
However, the Commission is cognizant that firms may be incentivized to
re-evaluate and adjust their existing internal compliance systems to
encourage employees to report internally and forestall the occurrence
of CEA violations.
While the Commission is not persuaded of the need to adopt a rule
to require internal reporting, after consideration of the comments on
internal reporting, the Commission has included incentives for internal
reporting in Final Rule 165.2(i) and 165.9. The Commission has
determined that the risk of meritless complaints is outweighed by the
benefits of a Final Rule that enables whistleblowers to make referrals
without fear of retaliation. Regarding the comment that the lack of an
internal reporting requirement would likely result in slower
identification, investigation, and potential remediation of violations
by firms, the Commission will evaluate whistleblower referrals promptly
and take action as necessary and appropriate. The comment does not
illustrate how and to what extent the lack of an internal reporting
requirement undermines existing compliance protocols. The whistleblower
program, by definition, is an external reporting regime. To the extent
there is a delay in the entity learning of violations and taking
corrective measures in the absence of internal reporting, the cost of
such a delay is outweighed by the risks of discouraging meritorious
claims.
Considerations of Efficiency, Competitiveness, and Financial Integrity
of Futures Markets, Price Discovery, and Sound Risk Management
Practices
The Commission has determined that its Final Rules implement
Congressional intent. After consideration and evaluation of the public
comments, and to the extent the Commission declines to impose an
additional internal reporting requirement upon whistleblowers beyond
the statutory mandate under section 748 of the Dodd-Frank Act, the
Commission has determined that the Final Rules will further the goals
of each of these three considerations under Section 15(a) of the CEA.
For example, to the extent whistleblowers are incentivized to refer
cases of market manipulation and disruptive trading practices, the
efficiency, competitiveness and financial integrity of futures markets,
the price discovery process, and effective risk management will be
enhanced by improved detection and enforcement of such violations. The
Commission is not persuaded by, nor was there any reliable evidence to
support, assertions that the Commission and affected parties will bear
excess costs due to a high volume of meritless claims in the absence of
an internal reporting requirement. Congress placed a procedural
safeguard in the statute by advising whistleblowers that they can be
criminally prosecuted for making false statements to the Commission
under 18 U.S.C. 1001.\172\ These and other provisions will reduce the
risk of meritless referrals. Moreover, whistleblowers are incentivized
to provide referrals only if they believe those referrals have merit
since they can only get an award if their referrals lead
[[Page 53197]]
to a successful enforcement action (see Rules 165.2(i) and 165.9.).
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\172\ Such false statements also could be a violation of
Sections 6(c)(2) and 9(a)(3) of the CEA, 7 U.S.C. 9, 13(a)(3), 15.
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2. Costs to Firms Regulated by Both the Commission and SEC
One commenter stated that the lack of regulatory harmonization
between the Commission and SEC whistleblower rules would ``impose costs
and lead to the potential for confusion for dually-regulated firms
without any corresponding benefit.'' \173\ Another commenter stated
that Commission-SEC harmonization would benefit ``dually registered
firms [and] the financial industry generally.'' \174\ In addition,
another commenter stated that the Proposed Rules are ``inconsistent
with the framework of compliance processes established under Sarbanes-
Oxley and other federal laws and regulations.'' This commenter further
stated the importance of harmonizing the implementation of the Dodd-
Frank Act with existing processes.\175\ We address each of these
concerns below in the context of the above mentioned Section 15(a)
considerations.
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\173\ See letter from SIFMA/FIA.
\174\ See letter from NSCP.
\175\ See letter from EEI.
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The Commission has considered the public comments calling for
harmonization with SEC whistleblower rules. The Dodd-Frank Act does not
require harmonization between the Commission and the SEC with respect
to their respective whistleblower provisions. Moreover, this is not a
joint Commission-SEC rulemaking. Having considered the comments and
consulted with SEC staff, the Commission has revised several
whistleblower rules, as discussed in detail under Section II.S. above,
with those of the SEC's whistleblower rules to enhance regulatory
certainty for market participants subject to both whistleblower
programs, which furthers the public interest.\176\
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\176\ Similar to the SEC, the Commission is not persuaded by the
commenter's suggestion that the Proposed Rules were inconsistent
with the Sarbanes-Oxley Act of 2002. See 76 FR at 34326 n.230 (the
SEC concluded that the mandates of Section 301 of the Sarbanes-Oxley
Act of 2002 and Section 21F of the Securities Exchange Act of 1934
were different and declined to follow the commenters' suggestion
that the SEC impose a ``requirement that employees of listed
companies also utilize internal audit committee or other complaint
procedures.'').
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With respect to costs, as explained in various places throughout
this release, the remaining differences between the SEC and Commission
rules are due to differences between the statutes governing the two
agencies and their respective regulatory objectives. Consequently,
costs associated with these remaining differences are not likely to be
significant under the five broad areas as enumerated in Section 15(a)
of the CEA.
3. Costs to Whistleblowers
A commenter stated that the proposed claims process is burdensome
and backwards. Specifically, this commenter noted that it is
problematic to require that a whistleblower notify the Commission of a
claim for reward upon the successful completion of an enforcement
action. The commenter also recommended that the Commission notify the
individual about a reward after an administrative or judicial action
has been taken.\177\ Another commenter shared similar concerns and
stated that the Commission should establish better policies for
communicating with whistleblowers throughout the application process to
lessen whistleblowers' burden to explain the importance of their
disclosures.\178\ We address each of these concerns below in the
context of Section 15(a) considerations.
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\177\ See letter from TAF.
\178\ See letter from POGO.
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Protection of Market Participants and the Public Considerations of
Efficiency, Competitiveness, and Financial Integrity of Futures
Markets, Price Discovery, and Sound Risk Management Practices
The Final Rules implement procedures mandated by section 748 of the
Dodd-Frank Act for whistleblowers to report CEA violations. The
Commission is aware of the concerns expressed by Commenters and intends
to implement policies and procedures for communicating with
whistleblowers that will address these concerns. Specifically,
following the successful completion of a covered action, the Commission
will publish a Notice of Covered Action on the Commission web site.
Whistleblowers will be able to utilize the Commission's Email
Subscriptions service \179\ to receive an email message when their
actions are resolved successfully. The Final Rules also reduce the
number of forms that a whistleblower must submit to the Commission from
three to two.
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\179\ See https://service.govdelivery.com/service/multi_subscribe.html?code=USCFTC.
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The Commission has considered the paperwork requirements in light
of all five of the considerations in Section 15(a) of the CEA. With
respect to benefits, the procedural requirements under the Final Rule
will enable the Commission to effectively implement and administer the
mandated whistleblower program in furtherance of these considerations
without imposing excessive costs or burdens upon whistleblowers.
B. Anti-Trust Considerations
Section 15(b) of the CEA \180\ requires the Commission to consider
the public interests protected by the antitrust laws and to take
actions involving the least anti-competitive means of achieving the
objectives of the CEA. The Commission believes that the Proposed Rules
will have a positive effect on competition by improving the fairness
and efficiency of the markets through improving detection and
remediation of potential violations of the CEA and Commission
regulations.
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\180\ 7 U.S.C. 19(b).
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IV. Paperwork Reduction Act
Certain provisions of the Proposed Rules contained ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act (``PRA'') of 1995.\181\ An agency may not sponsor,
conduct, or require a response to an information collection unless a
currently valid Office of Management and Budget (``OMB'') control
number is displayed. The Commission submitted proposed collections of
information to OMB for review in accordance with the PRA.\182\ The
titles for the collections of information were: (1) Form TCR (Tip,
Complaint or Referral); (2) Form WB-DEC (Declaration Concerning
Original Information Provided Pursuant to Section 23 of the Commodity
Exchange Act); and (3) Form WB-APP (Application for Award for Original
Information Provided Pursuant to Section 23 of the Commodity Exchange
Act). These three forms were proposed to implement Section 23 of the
CEA. The proposed forms allowed a whistleblower to provide information
to the Commission and its staff regarding: (1) Potential violations of
the CEA; and (2) the whistleblower's eligibility for and entitlement to
an award.
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\181\ 44 U.S.C. 3501 et seq.
\182\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
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The Commission did not receive any comments that directly addressed
its PRA analysis or its burden estimates. In comments on the Proposing
Release, a commenter suggested that the three-form process proposed for
obtaining information from whistleblowers was burdensome.\183\ As the
Commission discusses in connection with Rule 165.3, its Final Rules
require largely the same information to be collected, but in response
to comments the Commission has combined the information collection
[[Page 53198]]
into only two forms--Form TCR, which incorporates several questions
previously posed on Proposed Form WB-DEC, and Form WB-APP--to simplify
the process for whistleblowers.
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\183\ See letter from NWC.
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A. Summary of Collection of Information
Form TCR, submitted pursuant to Rule 165.3, requests the following
information:
1. Background information regarding each complainant submitting the
TCR, including the person's name and contact information. The
Commission has added a section for the identification of additional
complainants;
2. If the complainant is represented by an attorney, the name and
contact information for the complainant's attorney;
3. Information regarding the individual or entity that is the
subject of the tip or complaint, including contact information;
4. Information regarding the tip or complaint, including: the date
of the alleged violation; the nature of the complaint; the name and
type of financial product or investment, if relevant; whether the
complainant or counsel has had prior contact with Commission staff and
with whom; whether information has been communicated to another agency
and, if so, details about that communication, including the name and
contact information for the point of contact at such agency, if
available; whether the complaint relates to an entity of which the
complainant is or was an officer, director, counsel, employee,
consultant or contractor; whether the complainant has reported this
violation to his or her supervisor, compliance office, whistleblower
hotline, ombudsman, or any other available mechanism at the entity for
reporting violations and the date of such action was taken;
5. A description of the facts pertinent to the alleged violation,
including an explanation of why the complainant believes the acts
described constitute a violation of the CEA;
6. A description of all supporting materials in the complainant's
possession and the availability and location of any additional
supporting materials not in the complainant's possession;
7. An explanation of how the person submitting the complaint
obtained the information and, if any information was obtained from an
attorney or in a communication where an attorney was present, the
identification of any such information;
8. A description of any information obtained from a public source
and a description of such source;
9. A description of any documents or other information in the
complainant's submission that the complainant believes could reasonably
be expected to reveal his or her identity, including an explanation of
the basis for the complainant's belief that his or her identity would
be revealed if the documents were disclosed to a third party; and
10. Any additional information the complainant believes may be
relevant.
Also included in Form TCR are several items previously included in
proposed Form WB-DEC, which was required to be submitted pursuant to
Proposed Rule 165.3. First, there are several questions that require a
complainant to provide eligibility-related information by checking a
series of ``yes/no'' answers. Second, the form contains a declaration,
signed under penalty of perjury, that the information provided to the
Commission pursuant to Rule 165.3 is true, correct and complete to the
best of the person's knowledge, information and belief. Third, there is
a counsel certification, which is required to be executed in instances
where a complainant makes an anonymous submission pursuant to the
whistleblower program and is represented by an attorney. This statement
certifies that the attorney has verified the complainant's identity,
and has reviewed the complainant's completed and signed Form TCR for
completeness and accuracy, and that the information contained therein
is true, correct and complete to the best of the attorney's knowledge,
information and belief. The certification also contains new statements,
which were not included in proposed Form WB-DEC, that: (i) The attorney
has obtained the complainant's non-waivable consent to provide the
Commission with the original completed and signed Form TCR in the event
that the Commission requests it due to concerns that the form may
contain false, fictitious or fraudulent statements or representations
that were knowingly or willfully made by the complainant; and (ii) the
attorney consents to be legally obligated to provide the signed Form
TCR within seven (7) calendar days of receiving such request from the
Commission.
Form WB-APP, submitted pursuant to Rule 165.7, requires the
following information:
1. The applicant's name, address and contact information;
2. The applicant's social security number, if any;
3. If the person is represented by an attorney, the name and
contact information for the attorney;
4. Details concerning the tip or complaint, including (a) The
manner in which the information was submitted to the Commission, (b)
the subject of the tip, complaint or referral, (c) the Form TCR number,
and (d) the date the Form TCR was submitted to the Commission;
5. Information concerning the Notice of Covered Action to which the
claim relates, including (a) The date of the Notice, (b) the Notice
number, and (c) the case name and number;
6. For related actions, (a) The name and contact information for
the agency or organization to which the person provided the original
information, (b) the date the person provided this information, (c) the
date the agency or organization filed the related action, (d) the case
name and number of the related action, and (e) the name and contact
information for the point of contact at the agency or organization, if
known;
7. A series of questions concerning the person's eligibility to
receive an award as described in the Form TCR discussion above;
8. An optional explanation of the reasons why that the person
believes he is entitled to an award in connection with his submission
of information to the Commission, or to another agency in a related
action, including any additional information and supporting documents
that may be relevant in light of the criteria for determining the
amount of an award set forth in Rule 165.9, and any supporting
documents; and
9. A declaration, signed under penalty of perjury, that the
information provided in Form WB-APP is true, correct and complete to
the best of the person's knowledge, information and belief.
B. Use of Information
The collection of information on Forms TCR and WB-APP will be used
to permit the Commission and its staff to collect information from
whistleblowers regarding alleged violations of the CEA and the rules
and regulations thereunder and to determine claims for whistleblower
awards.
C. Respondents
The likely respondents to Form TCR will be individuals who wish to
provide information relating to possible violations of the CEA and the
rules and regulations thereunder, and who wish to be eligible for
whistleblower awards. The likely respondents to Form WB-APP will be
individuals who have provided the Commission, or another
[[Page 53199]]
agency in a related action, with information relating to a possible
violation of the CEA and who believe they are entitled to an award.
D. Total Annual Reporting and Recordkeeping Burden
1. Form TCR
The Commission estimates that it will receive submissions of
approximately 3,800 tips, complaints and referrals each year.\184\ Of
those 3,800 submissions, the Commission estimates that it will receive
approximately 100 whistleblower tips, complaints and referrals on Form
TCR each year.\185\ Each respondent would submit only one Form TCR and
would not have a recurring obligation to file additional Forms TCR. In
the Proposing Release, the Commission proposed that a whistleblower
would have to complete two forms, proposed Form TCR and proposed Form
WB-DEC, to be eligible for an award. In the Final Rules, the Commission
has eliminated Form WB-DEC and added the eligibility questions from
that proposed form to Form TCR.
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\184\ This number is a staff estimate based upon the volume of
tips, complaints or referrals received by the Commission in recent
years.
\185\ This number is a staff estimate based on the volume of
whistleblower tips, complaints and referrals that the Commission has
received in the first eleven months after the enactment of the Dodd-
Frank Act (less than two dozen) and an expectation that this volume
will increase as the public becomes more aware of the Commission's
whistleblower program.
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The Commission estimates that it will take a whistleblower, on
average, two and one-half hours to complete the Form TCR, which
includes the questions that had previously been included in proposed
Form WB-DEC. The completion time will depend largely on the complexity
of the alleged violation and the amount of information the
whistleblower possesses in support of the allegations. As a result, the
Commission estimates that the annual PRA burden of Form TCR is 250
hours.
2. Form WB-APP
Each whistleblower who believes that he is entitled to an award
because he provided original information to the Commission that led to
successful enforcement of a covered judicial or administrative action,
or a related action, is required to submit a Form WB-APP to be
considered for an award. The Commission estimates that it will receive
approximately nine Forms WB-APP each year.\186\ Finally, the Commission
estimates that it will take a whistleblower, on average, ten hours to
complete Form WB-APP. The completion time will depend largely on the
complexity of the alleged violation and the amount of information the
whistleblower possesses in support of his application for an award.
This estimate assumes that most whistleblowers will elect to complete
optional Section G (Entitlement to Award) of Form WB-APP. As a result,
the Commission estimates that the annual PRA burden of Form WB-APP is
90 hours.
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\186\ This number is a staff estimate based on two expectations:
First, that the Commission will receive Forms WB-APP in
approximately 15 percent of cases in which it posts a Notice of
Covered Action because the Commission expects that the Commission
will continue to bring a substantial number of enforcement cases
that are not based on whistleblower information; and second, that
the Commission will receive approximately three Forms WB-APP in each
of those cases. Because this is a new program, the staff does not
have prior relevant data on which it can base these estimates.
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3. Involvement and Cost of Attorneys
Under the Proposed Rules, an anonymous whistleblower is required
(when filing a claim for an award), and a whistleblower whose identity
is known may elect to retain counsel to represent the whistleblower in
the whistleblower program. The Commission expects that, in most of
those instances, the whistleblower's counsel will complete, or assist
in the completion, of some or all of the required forms on behalf of
the whistleblower. The Commission also expects that in the vast
majority of cases in which a whistleblower is represented by counsel,
the whistleblower will enter into a contingency fee arrangement with
counsel, providing that counsel will be paid for the representation
through a fixed percentage of any recovery by the whistleblower under
the program. Thus, most whistleblowers will not incur any direct,
quantifiable expenses for attorneys' fees for the completion of the
required forms.
The Commission anticipates that a small number of whistleblowers
(no more than five percent) will enter into hourly fee arrangements
with counsel.\187\ In those cases, a whistleblower will incur direct
expenses for attorneys' fees for the completion of the required forms.
To estimate those expenses, the Commission makes the following
assumptions:
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\187\ This estimate is based, in part, on the Commission's
belief that most whistleblowers likely will not retain counsel to
assist them in preparing the forms.
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1. The Commission will receive approximately 100 Forms TCR, and
nine Forms WB-APP annually; \188\
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\188\ The basis for these assumed amounts are explained in Parts
IV.D.1. and I.V.D.2. above.
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2. Whistleblowers will pay hourly fees to counsel for the
submission of approximately five Forms TCR and one Form WB-APP
annually; \189\
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\189\ These amounts are based on the assumption, as noted above,
that no more than five percent of all whistleblowers will be
represented by counsel pursuant to an hourly fee arrangement.
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3. Counsel retained by whistleblowers pursuant to an hourly fee
arrangement will charge on average $400 per hour; \190\ and
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\190\ The Commission uses this hourly rate for estimating the
billing rates of lawyers for purposes of other rules. Absent
historical data for the Commission to rely upon in connection with
the whistleblower program, the Commission believes that this billing
rate estimate is appropriate, recognizing that some attorneys
representing whistleblowers may charge different average hourly
rates.
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4. Counsel will bill on average: (a) 2.5 hours to complete a Form
TCR, and (b) 10 hours to complete a Form WB-APP.
Based on those assumptions, the Commission estimates that each year
whistleblowers will incur the following total amounts of attorneys'
fees for completion of the whistleblower program forms: (i) $5,000 for
the completion of Forms TCR; and (ii) $4,000 for the completion of Form
WB-APP.
E. Mandatory Collection of Information
A whistleblower would be required to complete a Form TCR, or submit
his information electronically, and a Form WB-APP, or submit his
information electronically, to qualify for a whistleblower award.
F. Confidentiality
As explained above, the statute provides that the Commission must
maintain the confidentiality of the identity of each whistleblower,
subject to certain exceptions. Section 23(h)(2) of the CEA states that,
except as expressly provided:
[T]he Commission, and any officer or employee of the Commission,
shall not disclose any information, including information provided
by a whistleblower to the Commission, which could reasonably be
expected to reveal the identity of a whistleblower, except in
accordance with the provisions of section 552a of title 5, United
States Code, unless and until required to be disclosed to a
defendant or respondent in connection with a public proceeding
instituted by the Commission [or certain specific entities listed in
paragraph (C) of Section 23(h)(2)].
Section 23(h)(2) also allows the Commission to share information
received from whistleblowers with certain domestic and foreign
regulatory and law enforcement agencies. However, the statute requires
the domestic entities to maintain such
[[Page 53200]]
information as confidential, and requires foreign entities to maintain
such information in accordance with such assurances of confidentiality
as the Commission deems appropriate.
In addition, Section 23(d)(2) provides that a whistleblower may
submit information to the Commission anonymously, so long as the
whistleblower is represented by counsel when the time comes for the
whistleblower to make a claim for an award. However, the statute also
provides that a whistleblower must disclose his or her identity prior
to receiving payment of an award.
V. Regulatory Flexibility Act Certification
The Regulatory Flexibility Act \191\ requires that agencies
consider whether the rules they propose will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis respecting the impact.\192\
In the Commission's Proposing Release, the Chairman, on behalf of the
Commission, certified that a regulatory flexibility analysis is not
required because the persons that would be subject to the rules--
individuals--are not ``small entities'' for purposes of the Regulatory
Flexibility Act and the rules therefore would not have a significant
economic impact on a substantial number of small entities. The
Commission received no comments regarding this conclusion.
---------------------------------------------------------------------------
\191\ 5 U.S.C. 601, et seq.
\192\ Id.
---------------------------------------------------------------------------
VI. Statutory Authority
The Commission is adopting the rules and forms contained in this
document under the authority contained in Sections 2, 5, 8a(5) and 23
of the Commodity Exchange Act.
List of Subjects in 17 CFR Part 165
Whistleblowing.
In consideration of the foregoing and pursuant to the authority
contained in the Commodity Exchange Act, in particular, Sections 2, 5,
8a(5) and 23 thereof, the Commodity Futures Trading Commission adds a
new 17 CFR Part 165 as set forth below:
PART 165--WHISTLEBLOWER RULES
Sec.
165.1 General.
165.2 Definitions.
165.3 Procedures for submitting original information.
165.4 Confidentiality.
165.5 Prerequisites to the consideration of an award.
165.6 Whistleblowers ineligible for an award.
165.7 Procedures for award applications and Commission award
determinations.
165.8 Amount of award.
165.9 Criteria for determining amount of award.
165.10 Contents of record for award determination.
165.11 Awards based upon related actions.
165.12 Payment of awards from the Fund, financing of customer
education initiatives, and deposits and credits to the Fund.
165.13 Appeals.
165.14 Procedures applicable to the payment of awards.
165.15 Delegations of authority.
165.16 No immunity.
165.17 Awards to whistleblowers who engage in culpable conduct.
165.18 Staff communications with whistleblowers from represented
entities.
165.19 Nonenforceability of certain provisions waiving rights and
remedies or requiring arbitration of disputes.
Appendix A to Part 165--Guidance With Respect to the Protection of
Whistleblowers Against Retaliation
Authority: 7 U.S.C. 2, 5, 12a(5) and 26, as amended by Title
VII of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, Pub. L. 111-203, 124 Stat. 1376 (July 16, 2010).
Sec. 165.1 General.
Section 23 of the Commodity Exchange Act, entitled ``Commodity
Whistleblower Incentives and Protection,'' requires the Commission to
pay awards, subject to certain limitations and conditions, to
whistleblowers who voluntarily provide the Commission with original
information about violations of the Commodity Exchange Act. This part
165 describes the whistleblower program that the Commission intends to
establish to implement the provisions of Section 23, and explains the
procedures the whistleblower will need to follow in order to be
eligible for an award. Whistleblowers should read these procedures
carefully, because the failure to take certain required steps within
the time frames described in this part may result in disqualification
from receiving an award. Unless expressly provided for in this part, no
person is authorized to make any offer or promise, or otherwise to bind
the Commission with respect to the payment of any award or the amount
thereof.
Sec. 165.2 Definitions.
As used in this part:
(a) Action. The term ``action'' generally means a single captioned
judicial or administrative proceeding. Notwithstanding the foregoing:
(1) For purposes of making an award under Sec. 165.7, the
Commission will treat as a Commission action two or more administrative
or judicial proceedings brought by the Commission if these proceedings
arise out of the same nucleus of operative facts; or
(2) For purposes of determining the payment on an award under Sec.
165.14, the Commission will deem as part of the Commission action upon
which the award was based any subsequent Commission proceeding that,
individually, results in a monetary sanction of $1,000,000 or less, and
that arises out of the same nucleus of operative facts.
(b) Aggregate amount. The phrase ``aggregate amount'' means the
total amount of an award granted to one or more whistleblowers pursuant
to Sec. 165.8.
(c) Analysis. The term ``analysis'' means the whistleblower's
examination and evaluation of information that may be generally
available, but which reveals information that is not generally known or
available to the public.
(d) Collected by the Commission. The phrase ``collected by the
Commission'' refers to any funds received, and confirmed by the U.S.
Department of the Treasury, in satisfaction of part or all of a civil
monetary penalty, disgorgement obligation, or fine owed to the
Commission.
(e) Covered judicial or administrative action. The phrase ``covered
judicial or administrative action'' means any judicial or
administrative action brought by the Commission under the Commodity
Exchange Act whose successful resolution results in monetary sanctions
exceeding $1,000,000.
(f) Fund. The term ``Fund'' means the Commodity Futures Trading
Commission Customer Protection Fund.
(g) Independent knowledge. The phrase ``independent knowledge''
means factual information in the whistleblower's possession that is not
generally known or available to the public. The whistleblower may gain
independent knowledge from the whistleblower's experiences,
communications and observations in the whistleblower's personal
business or social interactions. The Commission will not consider the
whistleblower's information to be derived from the whistleblower's
independent knowledge if the whistleblower obtained the information:
(1) From sources generally available to the public such as
corporate filings and the media, including the Internet;
(2) Through a communication that was subject to the attorney-client
privilege, unless the disclosure is
[[Page 53201]]
otherwise permitted by the applicable federal or state attorney conduct
rules;
(3) In connection with the legal representation of a client on
whose behalf the whistleblower, or the whistleblower's employer or
firm, have been providing services, and the whistleblower seek to use
the information to make a whistleblower submission for the
whistleblower's own benefit, unless disclosure is authorized by the
applicable federal or state attorney conduct rules;
(4) Because the whistleblower was an officer, director, trustee, or
partner of an entity and another person informed the whistleblower of
allegations of misconduct, or the whistleblower learned the information
in connection with the entity's processes for identifying, reporting,
and addressing possible violations of law;
(5) Because the whistleblower was an employee whose principal
duties involved compliance or internal audit responsibilities; or
(6) By a means or in a manner that is determined by a United States
court to violate applicable Federal or state criminal law.
(7) Exceptions. Paragraphs (g)(4) and (5) of this section shall not
apply if:
(i) The whistleblower has a reasonable basis to believe that
disclosure of the information to the Commission is necessary to prevent
the relevant entity from engaging in conduct that is likely to cause
substantial injury to the financial interest or property of the entity
or investors;
(ii) The whistleblower has a reasonable basis to believe that the
relevant entity is engaging in conduct that will impede an
investigation of the misconduct; or
(iii) At least 120 days have elapsed since the whistleblower
provided the information to the relevant entity's audit committee,
chief legal officer, chief compliance officer (or their equivalents),
or the whistleblower's supervisor, or since the whistleblower received
the information, if the whistleblower received it under circumstances
indicating that the entity's audit committee, chief legal officer,
chief compliance officer (or their equivalents), or the whistleblower's
supervisor was already aware of the information.
(h) Independent analysis. The phrase ``independent analysis'' means
the whistleblower's own analysis, whether done alone or in combination
with others.
(i) Information that led to successful enforcement. The Commission
will consider that the whistleblower provided original information that
led to the successful enforcement of a judicial or administrative
action, or related action, in the following circumstances:
(1) The whistleblower gave the Commission original information that
was sufficiently specific, credible, and timely to cause the Commission
staff to commence an examination, open an investigation, reopen an
investigation that the Commission had closed, or to inquire concerning
different conduct as part of a current examination or investigation,
and the Commission brought a successful judicial or administrative
action based in whole or in part on conduct that was the subject of the
whistleblower's original information; or
(2) The whistleblower gave the Commission original information
about conduct that was already under examination or investigation by
the Commission, the Congress, any other authority of the federal
government, a state Attorney General or securities regulatory
authority, any self-regulatory organization, futures association or the
Public Company Accounting Oversight Board (except in cases where the
whistleblower was an original source of this information as defined in
paragraph (i) of this section), and the whistleblower's submission
significantly contributed to the success of the action.
(3) The whistleblower reported original information through an
entity's internal whistleblower, legal, or compliance procedures for
reporting allegations of possible violations of law before or at the
same time the whistleblower reported them to the Commission; the entity
later provided the whistleblower's information to the Commission, or
provided results of an audit or investigation initiated in whole or in
part in response to information the whistleblower reported to the
entity; and the information the entity provided to the Commission
satisfies either paragraph (i)(1) or (i)(2) of this section. Under this
paragraph (i)(3), the whistleblower must also submit the same
information to the Commission in accordance with the procedures set
forth in Sec. 165.3 within 120 days of providing it to the entity.
(j) Monetary sanctions. The phrase ``monetary sanctions,'' when
used with respect to any judicial or administrative action, or related
action, means--
(1) Any monies, including penalties, disgorgement, restitution, and
interest ordered to be paid; and
(2) Any monies deposited into a disgorgement fund or other fund
pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7246(b)) as a result of such action or any settlement of such action.
(k) Original information. The phrase ``original information'' means
information that--
(1) Is derived from the independent knowledge or independent
analysis of a whistleblower;
(2) Is not already known to the Commission from any other source,
unless the whistleblower is the original source of the information;
(3) Is not exclusively derived from an allegation made in a
judicial or administrative hearing, in a governmental report, hearing,
audit, or investigation, or from the news media, unless the
whistleblower is a source of the information; and
(4) Is submitted to the Commission for the first time after July
21, 2010 (the date of enactment of the Wall Street Transparency and
Accountability Act of 2010).
(5) Original information shall not lose its status as original
information solely because the whistleblower submitted such information
prior to October 24, 2011, provided such information was submitted
after July 21, 2010, the date of enactment of the Wall Street
Transparency and Accountability Act of 2010. In order to be eligible
for an award, a whistleblower who submits original information to the
Commission after July 21, 2010, but prior to October 24, 2011, must
comply with the procedure set forth in Sec. 165.3(d).
(l) Original source. The whistleblower must satisfy the
whistleblower's status as the original source of information to the
Commission's satisfaction.
(1) Information obtained from another source. The Commission will
consider the whistleblower to be an ``original source'' of the same
information that the Commission obtains from another source if the
information the whistleblower provide satisfies the definition of
original information and the other source obtained the information from
the whistleblower or the whistleblower's representative.
(i) In order to be considered an original source of information
that the Commission receives from Congress, any other federal, state or
local authority, or any self-regulatory organization, the whistleblower
must have voluntarily given such authorities the information within the
meaning of this part. In determining whether the whistleblower is the
original source of information, the Commission may seek assistance and
confirmation from one of the other entities or authorities described
above.
(ii) In the event that the whistleblower claims to be the original
source of
[[Page 53202]]
information that an authority or another entity, other than as set
forth in paragraph (l)(1)(i) of this section, provided to the
Commission, the Commission may seek assistance and confirmation from
such authority or other entity.
(2) Information first provided to another authority or person. If
the whistleblower provides information to Congress, any other federal
or state authority, a registered entity, a registered futures
association, a self-regulatory organization, or to any of any of the
persons described in paragraphs (g)(4) and (5) of this section, and the
whistleblower, within 120 days, make a submission to the Commission
pursuant to Sec. 165.3, as the whistleblower must do in order for the
whistleblower to be eligible to be considered for an award, then, for
purposes of evaluating the whistleblower's claim to an award under
Sec. 165.7, the Commission will consider that the whistleblower
provided original information as of the date of the whistleblower's
original disclosure, report, or submission to one of these other
authorities or persons. The whistleblower must establish the
whistleblower's status as the original source of such information, as
well as the effective date of any prior disclosure, report, or
submission, to the Commission's satisfaction. The Commission may seek
assistance and confirmation from the other authority or person in
making this determination.
(3) Information already known by the Commission. If the Commission
already knows some information about a matter from other sources at the
time the whistleblower makes the whistleblower's submission, and the
whistleblower is not an original source of that information, as
described above, the Commission will consider the whistleblower an
``original source'' of any information the whistleblower separately
provides that is original information that materially adds to the
information that the Commission already possesses.
(m) Related action. The phrase ``related action,'' when used with
respect to any judicial or administrative action brought by the
Commission under the Commodity Exchange Act, means any judicial or
administrative action brought by an entity listed in Sec. 165.11(a)
that is based upon the original information voluntarily submitted by a
whistleblower to the Commission pursuant to Sec. 165.3 that led to the
successful resolution of the Commission action.
(n) Successful resolution. The phrase ``successful resolution,''
when used with respect to any judicial or administrative action brought
by the Commission under the Commodity Exchange Act, includes any
settlement of such action or final judgment in favor of the Commission.
It shall also have the same meaning as ``successful enforcement.''
(o) Voluntary submission or voluntarily submitted. (1) The phrase
``voluntary submission'' or ``voluntarily submitted'' within the
context of submission of original information to the Commission under
this part, shall mean the provision of information made prior to any
request from the Commission, Congress, any other federal or state
authority, the Department of Justice, a registered entity, a registered
futures association, or a self-regulatory organization to the
whistleblower or anyone representing the whistleblower (such as an
attorney) about a matter to which the information in the
whistleblower's submission is relevant. If the Commission or any of
these other authorities makes a request, inquiry, or demand to the
whistleblower or the whistleblower's representative first, the
whistleblower's submission will not be considered voluntary, and the
whistleblower will not be eligible for an award, even if the
whistleblower's response is not compelled by subpoena or other
applicable law. For purposes of this paragraph, the whistleblower will
be considered to have received a request, inquiry or demand if
documents or information from the whistleblower is within the scope of
a request, inquiry, or demand that the whistleblower's employer
receives, unless, after receiving the documents or information from the
whistleblower, the whistleblower's employer fails to provide the
whistleblower's documents or information to the requesting authority in
a timely manner.
(2) In addition, the whistleblower's submission will not be
considered voluntary if the whistleblower is under a pre-existing legal
or contractual duty to report the violations that are the subject of
the whistleblower's original information to the Commission, Congress,
any other federal or state authority, the Department of Justice, a
registered entity, a registered futures association, or a self-
regulatory organization, or a duty that arises out of a judicial or
administrative order.
(p) Whistleblower(s). (1) The term ``whistleblower'' or
``whistleblowers'' means any individual, or two (2) or more individuals
acting jointly, who provides information relating to a potential
violation of the Commodity Exchange Act to the Commission, in the
manner established by Sec. 165.3. A company or another entity is not
eligible to be a whistleblower.
(2) Prohibition against retaliation. The anti-retaliation
protections under Section 23(h) of the Commodity Exchange Act apply
whether or not the whistleblower satisfies the requirements, procedures
and conditions to qualify for an award. For purposes of the anti-
retaliation protections afforded by Section 23(h)(1)(A)(i) of the
Commodity Exchange Act, the whistleblower is a whistleblower if:
(i) The whistleblower possess a reasonable belief that the
information the whistleblower is providing relates to a possible
violation of the CEA, or the rules or regulations thereunder, that has
occurred, is ongoing, or is about to occur; and
(ii) The whistleblower provides that information in a manner
described in Sec. 165.3.
Sec. 165.3 Procedures for submitting original information.
A whistleblower's submission of information to the Commission will
be a two-step process.
(a) First, the whistleblower will need to submit the
whistleblower's information to the Commission. The whistleblower may
submit the whistleblower's information:
(1) By completing and submitting a Form TCR online and submitting
it electronically through the Commission's Web site at http://www.cftc.gov; or
(2) By completing the Form TCR and mailing or faxing the form to
the Commission, Three Lafayette Centre, 1155 21st Street, NW.,
Washington, DC 20581, Fax (202) 418-5975.
(b) Further, to be eligible for an award, the whistleblower must
declare under penalty of perjury at the time the whistleblower submits
the whistleblower's information pursuant to paragraph (a)(1) or (2) of
this section that the whistleblower's information is true and correct
to the best of the whistleblower's knowledge and belief.
(c) Notwithstanding paragraph (b) of this section, if the
whistleblower submitted the whistleblower's original information to the
Commission anonymously, then the whistleblower's identity must be
disclosed to the Commission and verified in a form and manner
acceptable to the Commission consistent with the procedure set forth in
Sec. 165.7(c) prior to Commission's payment of any award.
(d) If the whistleblower submitted original information in writing
to the Commission after July 21, 2010 (the date of enactment of the
Wall Street Transparency and Accountability Act of
[[Page 53203]]
2010) but before the effective date of these rules, the whistleblower
will be eligible for an award only in the event that the whistleblower
provided the original information to the Commission in a format or
manner other than that described in paragraph (a) of this section, the
whistleblower submits a completed Form TCR within 120 days of the
effective date of these rules and otherwise follows the procedures set
forth above in paragraphs (a) and (b) of this section.
Sec. 165.4 Confidentiality.
(a) In general. Section 23(h)(2) of the Commodity Exchange Act
requires that the Commission not disclose information that could
reasonably be expected to reveal the identity of a whistleblower,
except that the Commission may disclose such information in the
following circumstances:
(1) When disclosure is required to a defendant or respondent in
connection with a public proceeding that the Commission institutes or
in another public proceeding that is filed by an authority to which the
Commission provides the information, as described below;
(2) When the Commission determines that it is necessary to
accomplish the purposes of the Commodity Exchange Act and to protect
customers, it may provide whistleblower information to: The Department
of Justice; an appropriate department or agency of the Federal
Government, acting within the scope of its jurisdiction; a registered
entity, registered futures association, or a self-regulatory
organization; a state attorney general in connection with a criminal
investigation; any appropriate state department or agency, acting
within the scope of its jurisdiction; or a foreign futures authority;
and
(3) The Commission may make disclosures in accordance with the
Privacy Act of 1974 (5 U.S.C. 552a).
(b) Anonymous whistleblowers. A whistleblower may anonymously
submit information to the Commission, however, the whistleblower must
follow the procedures in Sec. 165.3(c) for submitting original
information anonymously. Such whistleblower who anonymously submits
information to the Commission must also follow the procedures in Sec.
165.7(c) in submitting to the Commission an application for a
whistleblower award.
Sec. 165.5 Prerequisites to the consideration of an award.
(a) Subject to the eligibility requirements described in these
rules, the Commission will pay an award to one or more whistleblowers
who:
(1) Provide a voluntary submission to the Commission;
(2) That contains original information; and
(3) That leads to the successful resolution of a covered Commission
judicial or administrative action or successful enforcement of a
related action; and
(b) In order to be eligible, the whistleblower must:
(1) Have given the Commission original information in the form and
manner that the Commission requires in Sec. 165.3 and be the original
source of information;
(2) Provide the Commission, upon its staff's request, certain
additional information, including: explanations and other assistance,
in the manner and form that staff may request, in order that the staff
may evaluate the use of the information submitted; all additional
information in the whistleblower's possession that is related to the
subject matter of the whistleblower's submission; and testimony or
other evidence acceptable to the staff relating to the whistleblower's
eligibility for an award; and
(3) If requested by Commission staff, enter into a confidentiality
agreement in a form acceptable to the Commission, including a provision
that a violation of the confidentiality agreement may lead to the
whistleblower's ineligibility to receive an award.
Sec. 165.6 Whistleblowers ineligible for an award.
(a) No award under Sec. 165.7 shall be made:
(1) To any whistleblower who is, or was at the time the
whistleblower acquired the original information submitted to the
Commission, a member, officer, or employee of: the Commission; the
Board of Governors of the Federal Reserve System; the Office of the
Comptroller of the Currency; the Board of Directors of the Federal
Deposit Insurance Corporation; the Director of the Office of Thrift
Supervision; the National Credit Union Administration Board; the
Securities and Exchange Commission; the Department of Justice; a
registered entity; a registered futures association; a self-regulatory
organization; or a law enforcement organization;
(2) To any whistleblower who is convicted of a criminal violation
related to the judicial or administrative action for which the
whistleblower otherwise could receive an award under Sec. 165.7;
(3) To any whistleblower who submits information to the Commission
that is based on the facts underlying the covered judicial or
administrative action submitted previously by another whistleblower;
(4) To any whistleblower who acquired the information the
whistleblower gave the Commission from any of the individuals described
in paragraphs (a)(1), (2), (3) or (6) of this section;
(5) To any whistleblower who, in the whistleblower's submission,
the whistleblower's other dealings with the Commission, or the
whistleblower's dealings with another authority in connection with a
related action, knowingly and willfully makes any false, fictitious, or
fraudulent statement or representation, or uses any false writing or
document, knowing that it contains any false, fictitious, or fraudulent
statement or entry, or omitted any material fact, where, in the absence
of such fact, other statements or representations made by the
whistleblower would be misleading;
(6) To any whistleblower who acquired the original information
reported to the Commission as a result of the whistleblower's role as a
member, officer or employee of either a foreign regulatory authority or
law enforcement organization;
(7) To any whistleblower who is, or was at the time the
whistleblower acquired the original information submitted to the
Commission, a member, officer, or employee of a foreign regulatory
authority or law enforcement organization; or
(8) To any whistleblower who acquired the original information the
whistleblower gave the Commission from any other person with the intent
to evade any provision of these rules.
(b) Notwithstanding a whistleblower's ineligibility for an award
for any reason set forth in paragraph (a) of this section, the
whistleblower will remain eligible for the anti-retaliation protections
set forth in Section 23(h)(1) of the Commodity Exchange Act.
Sec. 165.7 Procedures for award applications and Commission award
determinations.
(a) Whenever a Commission judicial or administrative action results
in monetary sanctions totaling more than $1,000,000 (i.e., a covered
judicial or administrative action) the Commission will publish on the
Commission's Web site a ``Notice of Covered Action.'' Such Notice of
Covered Action will be published subsequent to the entry of a final
judgment or order that alone, or collectively with other judgments or
orders previously entered in the Commission covered administrative or
judicial action, exceeds $1,000,000 in
[[Page 53204]]
monetary sanctions. The Commission will not contact whistleblower
claimants directly as to Notices of Covered Actions; prospective
claimants should monitor the Commission Web site for such Notices. A
whistleblower claimant will have 90 days from the date of the Notice of
Covered Action to file a claim for an award based on that action, or
the claim will be barred.
(b) To file a claim for a whistleblower award, the whistleblower
must file Form WB-APP, Application for Award for Original Information
Provided Pursuant to Section 23 of the Commodity Exchange Act. The
whistleblower must sign this form as the claimant and submit it to the
Commission by mail or fax to Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,
Fax (202) 418-5975. The Form WB-APP, including any attachments, must be
received by the Commission within 90 calendar days of the date of the
Notice of Covered Action or 90 calendar days following the date of a
final judgment in a related action in order to be considered for an
award.
(c) If the whistleblower provided the whistleblower's original
information to the Commission anonymously pursuant to Sec. Sec. 165.3
and 165.4 and:
(1) The whistleblower is making the whistleblower's claim for a
whistleblower award on a disclosed basis, the whistleblower must
disclose the whistleblower's identity on the Form WB-APP. The
whistleblower's identity must be verified in a form and manner that is
acceptable to the Commission prior to the payment of any award; or
(2) The whistleblower is making the whistleblower's claim for a
whistleblower award on an anonymous basis, the whistleblower must be
represented by counsel. The whistleblower must provide the
whistleblower's counsel with a completed Form WB-APP that is signed by
the whistleblower by no later than the date upon which the
whistleblower's counsel submits to the Commission a copy of the Form
WB-APP that does not disclose the whistleblower's identity and is
signed solely by the whistleblower's counsel. In addition, the
whistleblower's counsel must retain the signed original of the
whistleblower's Form WB-APP in counsel's records. Upon request of the
Commission staff, whistleblower's counsel must produce to the
Commission the whistleblower's signed original WB-APP and the
whistleblower's identity must be verified in a form and manner that is
acceptable to the Commission prior to the payment of any award.
(d) Once the time for filing any appeals of the Commission's
judicial or administrative action and all related actions has expired,
or, where an appeal has been filed, after all appeals in the judicial,
administrative and related actions have concluded, the Commission will
evaluate all timely whistleblower award claims submitted on Form WB-APP
in accordance with the criteria set forth in this Part 165. In
connection with this process, the Commission may require that the
whistleblower provide additional information relating to the
whistleblower's eligibility for an award or satisfaction of any of the
conditions for an award, as set forth in Sec. 165.5(b). Following that
evaluation, the Commission will send the whistleblower a Final Order
setting forth whether the claim is allowed or denied and, if allowed,
setting forth the award percentage amount.
(e) The Commission's Office of the Secretariat will provide the
whistleblower with the Final Order of the Commission.
Sec. 165.8 Amount of award.
If all of the conditions are met for a whistleblower award in
connection with a covered judicial or administrative action or a
related action, the Commission will then decide the amount of the award
pursuant to the procedure set forth in Sec. 165.7.
(a) Whistleblower awards shall be in an aggregate amount equal to--
(1) Not less than 10 percent, in total, of what has been collected
of the monetary sanctions imposed in the covered judicial or
administrative action or related actions; and
(2) Not more than 30 percent, in total, of what has been collected
of the monetary sanctions imposed in the covered judicial or
administrative action or related actions.
(b) If the Commission makes awards to more than one whistleblower
in connection with the same action or related action, the Commission
will determine an individual percentage award for each whistleblower,
but in no event will the total amount awarded to all whistleblowers as
a group be less than 10 percent or greater than 30 percent of the
amount the Commission or the other authorities collect.
Sec. 165.9 Criteria for determining amount of award.
The determination of the amount of an award shall be in the
discretion of the Commission. The Commission may exercise this
discretion directly or through delegated authority pursuant to Sec.
165.15.
(a) In determining the amount of an award, the Commission shall
take into consideration--
(1) The significance of the information provided by the
whistleblower to the success of the covered judicial or administrative
action or related action;
(2) The degree of assistance provided by the whistleblower and any
legal representative of the whistleblower in a covered judicial or
administrative action or related action;
(3) The programmatic interest of the Commission in deterring
violations of the Commodity Exchange Act by making awards to
whistleblowers who provide information that leads to the successful
enforcement of such laws;
(4) Whether the award otherwise enhances the Commission's ability
to enforce the Commodity Exchange Act, protect customers, and encourage
the submission of high quality information from whistleblowers; and
(5) Potential adverse incentives from oversize awards.
(b) Factors that may increase the amount of a whistleblower's
award. In determining whether to increase the amount of an award, the
Commission will consider the following factors, which are not listed in
order of importance.
(1) Significance of the information provided by the whistleblower.
The Commission will assess the significance of the information provided
by a whistleblower to the success of the Commission action or related
action. In considering this factor, the Commission may take into
account, among other things:
(i) The nature of the information provided by the whistleblower and
how it related to the successful enforcement action, including whether
the reliability and completeness of the information provided to the
Commission by the whistleblower resulted in the conservation of
Commission resources; and
(ii) The degree to which the information provided by the
whistleblower supported one or more successful claims brought in the
Commission action or related action.
(2) Assistance provided by the whistleblower. The Commission will
assess the degree of assistance provided by the whistleblower and any
legal representative of the whistleblower in the Commission action or
related action. In considering this factor, the Commission may take
into account, among other things:
(i) Whether the whistleblower provided ongoing, extensive, and
timely
[[Page 53205]]
cooperation and assistance by, for example, helping to explain complex
transactions, interpreting key evidence, or identifying new and
productive lines of inquiry;
(ii) The timeliness of the whistleblower's initial report to the
Commission or to an internal compliance or reporting system of business
organizations committing, or impacted by, the violations of the
Commodity Exchange Act, where appropriate;
(iii) The resources conserved as a result of the whistleblower's
assistance;
(iv) Whether the whistleblower appropriately encouraged or
authorized others to assist the staff of the Commission who might
otherwise not have participated in the investigation or related action;
(v) The efforts undertaken by the whistleblower to remediate the
harm caused by the violations of the Commodity Exchange Act, including
assisting the authorities in the recovery of the fruits and
instrumentalities of the violations; and
(vi) Any unique hardships experienced by the whistleblower as a
result of his or her reporting and assisting in the enforcement action.
(3) Law enforcement interest. The Commission will assess its
programmatic interest in deterring violations of the Commodity Exchange
Act by making awards to whistleblowers who provide information that
leads to the successful enforcement of such laws. In considering this
factor, the Commission may take into account, among other things:
(i) The degree to which an award enhances the Commission's ability
to enforce the commodity laws;
(ii) The degree to which an award encourages the submission of high
quality information from whistleblowers by appropriately rewarding
whistleblower submissions of significant information and assistance,
even in cases where the monetary sanctions available for collection are
limited or potential monetary sanctions were reduced or eliminated by
the Commission because an entity self-reported a commodities violation
following the whistleblower's related internal disclosure, report, or
submission;
(iii) Whether the subject matter of the action is a Commission
priority, whether the reported misconduct involves regulated entities
or fiduciaries, whether the whistleblower exposed an industry-wide
practice, the type and severity of the commodity violations, the age
and duration of misconduct, the number of violations, and the isolated,
repetitive, or ongoing nature of the violations;
(iv) The dangers to market participants or others presented by the
underlying violations involved in the enforcement action, including the
amount of harm or potential harm caused by the underlying violations,
the type of harm resulting from or threatened by the underlying
violations, and the number of individuals or entities harmed; and
(v) The degree, reliability and effectiveness of the
whistleblower's assistance, including the consideration of the
whistleblower's complete, timely truthful assistance to the Commission
and criminal authorities.
(4) Participation in internal compliance systems. The Commission
will assess whether, and the extent to which, the whistleblower and any
legal representative of the whistleblower participated in internal
compliance systems. In considering this factor, the Commission may take
into account, among other things:
(i) Whether, and the extent to which, a whistleblower reported the
possible Commodity Exchange Act violations through internal
whistleblower, legal or compliance procedures before, or at the same
time as, reporting them to the Commission; and
(ii) Whether, and the extent to which, a whistleblower assisted any
internal investigation or inquiry concerning the reported Commodity
Exchange Act violations.
(c) Factors that may decrease the amount of a whistleblower's
award. In determining whether to decrease the amount of an award, the
Commission will consider the following factors, which are not listed in
order of importance.
(1) Culpability. The Commission will assess the culpability or
involvement of the whistleblower in matters associated with the
Commission's action or related actions. In considering this factor, the
Commission may take into account, among other things:
(i) The whistleblower's role in the Commodity Exchange Act
violations;
(ii) The whistleblower's education, training, experience, and
position of responsibility at the time the violations occurred;
(iii) Whether the whistleblower acted with scienter, both generally
and in relation to others who participated in the violations;
(iv) Whether the whistleblower financially benefitted from the
violations;
(v) Whether the whistleblower is a recidivist;
(vi) The egregiousness of any wrongdoing committed by the
whistleblower; and
(vii) Whether the whistleblower knowingly interfered with the
Commission's investigation of the violations or related enforcement
actions.
(2) Unreasonable reporting delay. The Commission will assess
whether the whistleblower unreasonably delayed reporting the Commodity
Exchange Act violations. In considering this factor, the Commission may
take into account, among other things:
(i) Whether the whistleblower was aware of the relevant facts but
failed to take reasonable steps to report or prevent the violations
from occurring or continuing;
(ii) Whether the whistleblower was aware of the relevant facts but
only reported them after learning about a related inquiry,
investigation, or enforcement action; and
(iii) Whether there was a legitimate reason for the whistleblower
to delay reporting the violations.
(3) Interference with internal compliance and reporting systems.
The Commission will assess, in cases where the whistleblower interacted
with his or her entity's internal compliance or reporting system,
whether the whistleblower undermined the integrity of such system. In
considering this factor, the Commission will take into account whether
there is evidence provided to the Commission that the whistleblower
knowingly:
(i) Interfered with an entity's established legal, compliance, or
audit procedures to prevent or delay detection of the reported
Commodity Exchange Act violation;
(ii) Made any material false, fictitious, or fraudulent statements
or representations that hindered an entity's efforts to detect,
investigate, or remediate the reported Commodity Exchange Act
violations; or
(iii) Provided any false writing or document knowing the writing or
document contained any false, fictitious or fraudulent statements or
entries that hindered an entity's efforts to detect, investigate, or
remediate the reported Commodity Exchange Act violations.
(d) The Commission shall not take into consideration the balance of
the Fund in determining the amount of an award.
Sec. 165.10 Contents of record for award determinations.
(a) The following items constitute the record upon which the award
determination under Sec. 165.7 shall be made:
[[Page 53206]]
(1) The whistleblower's Form TCR, ``Tip, Complaint or Referral,''
including related attachments, and other documentation provided by the
whistleblower to the Commission;
(2) The whistleblower's Form WB-APP, ``Application for Award for
Original Information Provided Pursuant to Section 23 of the Commodity
Exchange Act,'' and related attachments;
(3) The complaint, notice of hearing, answers and any amendments
thereto;
(4) The final judgment, consent order, or administrative speaking
order;
(5) The transcript of the related administrative hearing or civil
injunctive proceeding, including any exhibits entered at the hearing or
proceeding;
(6) Any other documents that appear on the docket of the
proceeding; and
(7) Sworn declarations (including attachments) from the
Commission's Division of Enforcement staff regarding any matters
relevant to the award determination.
(b) The record upon which the award determinations under Sec.
165.7 shall be made shall not include any Commission pre-decisional,
attorney-client privilege, attorney work product privilege, or internal
deliberative process materials related to the Commission or its staff's
determination: To file or settle the related covered judicial or
administrative action; and/or whether, to whom and in what amount to
make a whistleblower award. Further, the record upon which the award
determination under Sec. 165.7 shall be made shall not include any
other entity's pre-decisional, attorney-client privilege, attorney work
product privilege, or internal deliberative process materials related
to its or its staff's determination to file or settle a related action.
Sec. 165.11 Awards based upon related actions.
Provided that a whistleblower or whistleblowers comply with the
requirements in Sec. Sec. 165.3, 165.5 and 165.7, and pursuant to
Sec. 165.8, the Commission or its delegate may grant an award based on
the amount of monetary sanctions collected in a ``related action'' or
``related actions'' rather than on the amount collected in a covered
judicial or administrative action, where:
(a) A ``related action'' is a judicial or administrative action
that is brought by:
(1) The Department of Justice;
(2) An appropriate department or agency of the Federal Government,
acting within the scope of its jurisdiction;
(3) A registered entity, registered futures association, or self-
regulatory organization;
(4) A State criminal or appropriate civil agency, acting within the
scope of its jurisdiction; or
(5) A foreign futures authority; and
(b) The ``related action'' is based on the same original
information that the whistleblower voluntarily submitted to the
Commission and led to a successful resolution of the Commission
judicial or administrative action.
Sec. 165.12 Payment of awards from the Fund, financing of customer
education initiatives, and deposits and credits to the Fund.
(a) The Commission shall pay awards to whistleblowers from the
Fund.
(b) The Commission shall deposit into or credit to the Fund:
(1) Any monetary sanctions collected by the Commission in any
covered judicial or administrative action that is not otherwise
distributed, or ordered to be distributed, to victims of a violation of
the Commodity Exchange Act underlying such action, unless the balance
of the Fund at the time the monetary sanctions are collected exceeds
$100,000,000. In the event the Fund's value exceeds $100,000,000, any
monetary sanctions collected by the Commission in a covered judicial or
administrative action that is not otherwise distributed, or ordered to
be distributed, to victims of violations of the Commodity Exchange Act
or the rules and regulations thereunder underlying such action, shall
be deposited into the general fund of the U.S. Treasury.
(2) In the event that the amounts deposited into or credited to the
Fund under paragraph (b)(1) of this section are not sufficient to
satisfy an award made pursuant to Sec. 165.7, then, pursuant to
Section 23(g)(3)(B) of the Commodity Exchange Act;
(i) An amount equal to the unsatisfied portion of the award;
(ii) Shall be deposited into or credited to the Fund;
(iii) From any monetary sanction collected by the Commission in any
judicial or administrative action brought by the Commission under the
Commodity Exchange Act, regardless of whether it qualifies as a
``covered judicial or administrative action''; provided, however, that
such judicial or administrative action is based on information provided
by a whistleblower.
(c) Office of Consumer Outreach. The Commission shall undertake and
maintain customer education initiatives through its Office of Consumer
Outreach. The initiatives shall be designed to help customers protect
themselves against fraud or other violations of the Commodity Exchange
Act, or the rules or regulations thereunder. The Commission shall fund
the initiatives and may utilize funds deposited into the Fund during
any fiscal year in which the beginning (October 1) balance of the Fund
is greater than $10,000,000. The Commission shall budget, on an annual
basis, the amount used to finance customer education initiatives,
taking into consideration the balance of the Fund.
Sec. 165.13 Appeals.
(a) Any Final Order of the Commission relating to a whistleblower
award determination, including whether, to whom, or in what amount to
make whistleblower awards, may be appealed to the appropriate court of
appeals of the United States not more than 30 days after the Final
Order of the Commission is issued.
(b) The record on appeal shall consist of:
(1) The Contents of Record for Award Determinations, as set forth
in Sec. 165.9; and
(2) The Final Order of the Commission, as set forth in Sec. 165.7.
Sec. 165.14 Procedures applicable to the payment of awards.
(a) A recipient of a whistleblower award is entitled to payment on
the award only to the extent that the monetary sanction upon which the
award is based is collected in the Commission judicial or
administrative action or in a related action.
(b) Payment of a whistleblower award for a monetary sanction
collected in a Commission action or related action shall be made within
a reasonable time following the later of:
(1) The date on which the monetary sanction is collected; or
(2) The completion of the appeals process for all whistleblower
award claims arising from:
(i) The Notice of Covered Action, in the case of any payment of an
award for a monetary sanction collected in a covered judicial or
administrative action; or
(ii) The related action, in the case of any payment of an award for
a monetary sanction collected in a related action.
(c) If there are insufficient amounts available in the Fund to pay
the entire amount of an award payment within a reasonable period of
time from the time for payment specified by paragraph (b) of this
section, then subject to the following terms, the balance of the
payment shall be paid when amounts become available in the Fund, as
follows:
[[Page 53207]]
(1) Where multiple whistleblowers are owed payments from the Fund
based on awards that do not arise from the same Notice of Covered
Action (or related action), priority in making these payments will be
determined based upon the date that the Final Order of the Commission
is made. If two or more of these Final Orders of the Commission are
entered on the same date, then those whistleblowers owed payments will
be paid on a pro rata basis until sufficient amounts become available
in the Fund to pay their entire payments.
(2) Where multiple whistleblowers are owed payments from the Fund
based on awards that arise from the same Notice of Covered Action (or
related action), they will share the same payment priority and will be
paid on a pro rata basis until sufficient amounts become available in
the Fund to pay their entire payments.
Sec. 165.15 Delegations of authority.
(a) Delegation of authority to the Executive Director. The
Commission hereby delegates, until such time as the Commission orders
otherwise, to the Executive Director or to any Commission employee
under the Executive Director's supervision as he or she may designate,
the authority to take the following actions to carry out this Part 165
and the requirements of Section 23(h) of Commodity Exchange Act.
(1) Delegated authority under Sec. 165.12(a), (b). The Executive
Director's delegated authority to deposit into or credit collected
monetary sanctions to the Fund and the payment of awards therefrom
shall be with the concurrence of the General Counsel and the Director
of the Division of Enforcement or of their respective designees.
(2) Delegated authority to select a Whistleblower Award
Determination Panel that shall be composed of three of the Commission's
Offices or Divisions. The Whistleblower Award Determination Panel shall
include neither the Division of Enforcement nor the Office of General
Counsel.
(b) Delegation of Authority to Whistleblower Award Determination
Panel. The Commission hereby delegates, until such time as the
Commission orders otherwise, to the Whistleblower Award Determination
Panel the authority to make whistleblower award determinations under
this Part 165, including the determinations as whether, to whom, or in
what amount to make awards. Award determinations in matters involving
monetary sanctions in either the Commission's action or a related
action that total more than $15,000,000 (i.e., matters with a maximum
potential whistleblower award greater than $5,000,000) must be
determined by the heads of the Offices or Divisions comprising the
Whistleblower Award Determination Panel. In all other matters, award
determinations may be determined by the employee designees of the heads
of the Offices or Divisions comprising the Whistleblower Award
Determination Panel.
(c) Delegation of Authority to the Whistleblower Office. With the
exception of Sec. 165.12, the Commission hereby delegates, until such
time as the Commission orders otherwise, to the head of the
Whistleblower Office the authority to take any action under this Part
165 that is not otherwise delegated to either the Executive Director or
the Whistleblower Award Determination Panel under this section,
including the authority to administer the Commission's whistleblower
program and liaise with whistleblowers.
Sec. 165.16 No immunity.
The Commodity Whistleblower Incentives and Protections provisions
set forth in Section 23(h) of Commodity Exchange Act and this Part 165
do not provide individuals who provide information to the Commission
with immunity from prosecution. The fact that an individual may become
a whistleblower and assist in Commission investigations and enforcement
actions does not preclude the Commission from bringing an action
against the whistleblower based upon the whistleblower's own conduct in
connection with violations of the Commodity Exchange Act and the
Commission's regulations. If such an action is determined to be
appropriate, however, the Commission's Division of Enforcement will
take the whistleblower's cooperation into consideration in accordance
with its sanction recommendations to the Commission.
Sec. 165.17 Awards to whistleblowers who engage in culpable conduct.
In determining whether the required $1,000,000 threshold has been
satisfied for purposes of making any award, the Commission will not
take into account any monetary sanctions that the whistleblower is
ordered to pay, or that is ordered against any entity whose liability
is based primarily on conduct that the whistleblower principally
directed, planned, or initiated. Similarly, if the Commission
determines that a whistleblower is eligible for an award, any amounts
that the whistleblower or such an entity pay in sanctions as a result
of the action or related actions will not be included within the
calculation of the amounts collected for purposes of making payments
pursuant to Sec. 165.14.
Sec. 165.18 Staff communications with whistleblowers from represented
entities.
If the whistleblower is a whistleblower who is a director, officer,
member, agent, or employee of an entity that has counsel, and the
whistleblower has initiated communication with the Commission relating
to a potential violation of the Commodity Exchange Act, the
Commission's staff is authorized to communicate directly with the
whistleblower regarding the subject of the whistleblower's
communication without seeking the consent of the entity's counsel.
Sec. 165.19 Nonenforceability of certain provisions waiving rights
and remedies or requiring arbitration of disputes.
The rights and remedies provided for in this Part 165 of the
Commission's regulations may not be waived by any agreement, policy,
form, or condition of employment, including by a predispute arbitration
agreement. No predispute arbitration agreement shall be valid or
enforceable if the agreement requires arbitration of a dispute arising
under this Part.
Appendix A to Part 165--Guidance With Respect to the Protection of
Whistleblowers Against Retaliation
Section 23(h)(1) of Commodity Exchange Act prohibits employers
from engaging in retaliation against whistleblowers. This provision
provides whistleblowers with certain protections against
retaliation, including: A federal cause of action against the
employer, which must be filed in the appropriate district court of
the United States within two (2) years of the employer's retaliatory
act; and potential relief for prevailing whistleblowers, including
reinstatement, back pay, and compensation for other expenses,
including reasonable attorney's fees.
(a) In General. No employer may discharge, demote, suspend,
threaten, harass, directly or indirectly, or in any other manner
discriminate against, a whistleblower in the terms and conditions of
employment because of any lawful act done by the whistleblower--
(1) In providing information to the Commission in accordance
with this part 165; or
(2) In assisting in any investigation or judicial or
administrative action of the Commission based upon or related to
such information.
(b) Enforcement--(1) Cause of Action.--An individual who alleges
discharge or other discrimination in violation of section
23(h)(1)(A) of the Commodity Exchange Act may bring an action under
section 23(h)(1)(B) of the Commodity Exchange Act in the appropriate
district court of the United States
[[Page 53208]]
for the relief provided in section 23(h)(1)(C) of the Commodity
Exchange Act, unless the individual who is alleging discharge or
other discrimination in violation of section 23(h)(1)(A) of the
Commodity Exchange Act is an employee of the Federal Government, in
which case the individual shall only bring an action under section
1221 of title 5, United States Code.
(2) Subpoenas.--A subpoena requiring the attendance of a witness
at a trial or hearing conducted under section 23(h)(1)(A) of the
Commodity Exchange Act may be served at any place in the United
States.
(3) Statute of Limitations.--An action under section 23(h)(1)(B)
of the Commodity Exchange Act may not be brought more than 2 years
after the date on which the violation reported in Section
23(h)(1)(A) of the Commodity Exchange Act is committed.
(c) Relief.--Relief for an individual prevailing in an action
brought under section 23(h)(1)(B) of the Commodity Exchange Act
shall include--
(1) Reinstatement with the same seniority status that the
individual would have had, but for the discrimination;
(2) The amount of back pay otherwise owed to the individual,
with interest; and
(3) Compensation for any special damages sustained as a result
of the discharge or discrimination, including litigation costs,
expert witness fees, and reasonable attorney's fees.
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Privacy Act Statement
This notice is given under the Privacy Act of 1974. The Privacy
Act requires that the Commodity Futures Trading Commission (CFTC or
Commission) inform individuals of the following when asking for
information. This form may be used by anyone wishing to provide the
CFTC with information concerning a violation of the Commodity
Exchange Act or the Commission's regulations. If the whistleblower
is submitting this information for the Commission's whistleblower
award program pursuant to Section 23 of the Commodity Exchange Act,
the information provided will enable the Commission to determine the
whistleblower's eligibility for payment of an award. This
information may be disclosed to Federal, state, local, or foreign
agencies responsible for investigating, prosecuting, enforcing, or
implementing laws, rules, or regulations implicated by the
information consistent with the confidentiality requirements set
forth therein, including pursuant to Section 23 of the Commodity
Exchange Act and Part 165 of the Commission's regulations
thereunder. Furnishing the information is voluntary, but a decision
not to do so may result in the whistleblower not being eligible for
award consideration.
Questions concerning this form may be directed to the Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Submission Procedures
After completing this Form TCR, please send it
electronically, by mail, e-mail or delivery to the Commission:
electronically via the Commission's Web site; by mail or delivery to
the Commodity Futures Trading Commission, Three Lafayette Centre,
1151 21st Street, NW., Washington, DC 20581; by e-mail to XXXXX.gov;
or by facsimile to (202) XXX-XXXX.
The whistleblower has the right to submit information
anonymously.
If the whistleblower is submitting information for the
Commission's whistleblower award program, the whistleblower must
submit the whistleblower's information using this Form TCR.
Instructions for Completing Form TCR
Section A: Information About You
Questions 1-4: Please provide the following information about
yourself:
Last name, first name, and middle initial;
Complete address, including city, state and zip code;
Telephone number and, if available, an alternate number
where the whistleblower can be reached;
The whistleblower's e-mail address (to facilitate
communications, we strongly encourage the whistleblower to provide
the whistleblower's email address);
The whistleblower's preferred method of communication;
and
The whistleblower's occupation.
Section B: Information about the Whistleblower's Attorney. Complete
this Section Only if the Whistleblower is Represented by an
Attorney in this Matter
Questions 1-4: Provide the following information about the
attorney representing the whistleblower in this matter:
Attorney's name;
Firm name;
Complete address, including city, state and zip code;
Telephone number and fax number; and
E-mail address.
Section C: Tell Us About the Individual and/or Entity The
Whistleblower Has a Complaint Against
If the whistleblower's complaint relates to more than two
individuals and/or entities, the whistleblower may use additional
sheets, if necessary.
Question 1: Choose one of the following that best describes the
individual's profession or entity's type to which the
whistleblower's complaint relates:
For Individuals: Accountant, analyst, associated
person, attorney, auditor, broker, commodity trading advisor,
commodity pool operator, compliance officer, employee, executing
broker, executive officer or director, financial planner, floor
broker, floor trader, trader, unknown, or other (specify).
For Entities: Bank, commodity trading advisor,
commodity pool operator, commodity pool, futures commission
merchant, hedge fund, introducing broker, major swap participant,
retail foreign exchange dealer, swap dealer, unknown, or other
(specify).
Questions 2-4: For each individual and/or entity, provide the
following information, if known:
Full name;
Complete address, including city, state and zip code;
Telephone number;
E-mail address; and
Internet address, if applicable.
Section D: Tell Us About the Whistleblower's Complaint
Question 1: State the date (mm/dd/yyyy) that the alleged conduct
began.
Question 2: Choose the option that the whistleblower believes
best describes the nature of the whistleblower's complaint. If the
whistleblower is alleging more than one violation, please list all
that the whistleblower believes may apply. Use additional sheets, if
necessary.
Theft/misappropriation;
Misrepresentation/omission (i.e., false/misleading
marketing/sales literature; inaccurate, misleading or non-disclosure
by commodity pool operator, commodity trading advisor, futures
commission merchant, introducing broker, retail foreign exchange
[[Page 53217]]
dealer, major swap participant, swap dealer, or their associated
person(s); false/material misstatements in any report or statement);
Ponzi/pyramid scheme;
Off-exchange foreign currency, commodity, or precious
metal fraud;
Registration violations (including unregistered
commodity pool operator; commodity trading advisor; futures
commission merchant; introducing broker; retail foreign exchange
dealer; swap dealer; or their associated person(s));
Trading (after hours trading; algorithmic trading;
disruptive trading; front running; insider trading; manipulation/
attempted manipulation of commodity prices; market timing;
inaccurate quotes/pricing information; program trading; trading
suspensions; volatility);
Fees/mark-ups/commissions (excessive, unnecessary or
unearned administrative, commission or sales fees; failure to
disclose fees; insufficient notice of change in fees; excessive or
otherwise improper spreads or fills);
Sales and advisory practices (background information on
past violations/integrity; breach of fiduciary duty/responsibility;
churning/excessive trading; cold calling; conflict of interest;
abuse of authority in discretionary trading; failure to respond to
client, customer or participant; guarantee against loss; promise to
profit; high pressure sales techniques; instructions by client,
customer or participant not followed; investment objectives not
followed; solicitation methods (e.g., cold calling, seminars);
Customer accounts (unauthorized trading); identity
theft affecting account; inaccurate valuation of Net Asset Value; or
Other (analyst complaints; market maker activities;
employer/employee disputes; specify other).
Question 3a: State whether the whistleblower or the
whistleblower's counsel has had any prior communications with the
CFTC concerning this matter.
Question 3b: If the answer to question 3a is yes, provide the
name of the CFTC staff member with whom the whistleblower or the
whistleblower's counsel communicated.
Question 4a: Indicate whether the whistleblower or the
whistleblower's counsel has provided the information the
whistleblower is providing to the CFTC to any other agency or
organization.
Question 4b: If the answer to question 4a is yes, provide
details.
Question 4c: Provide the name and contact information of the
point of contact at the other agency or organization, if known.
Question 5a: Indicate whether the whistleblower's complaint
relates to an entity of which the whistleblower is, or was in the
past, an officer, director, counsel, employee, consultant, or
contractor.
Question 5b: If the answer to question 5a is yes, state whether
the whistleblower has reported this violation to the whistleblower's
supervisor, compliance office, whistleblower hotline, ombudsman, or
any other available mechanism at the entity for reporting
violations.
Question 5c: If the answer to question 5b is yes, provide
details.
Question 5d: Provide the date on which the whistleblower took
the actions described in questions 5a and 5b.
Question 6a: Indicate whether the whistleblower has taken any
other action regarding the whistleblower's complaint, including
whether the whistleblower complained to the Commission, another
regulator, a law enforcement agency, or any other agency or
organization; initiated legal action, mediation or arbitration, or
initiated any other action.
Question 6b: If the whistleblower answered yes to question 6a,
provide details, including the date on which the whistleblower took
the action(s) described, the name of the person or entity to whom
the whistleblower directed any report or complaint and contact
information for the person or entity, if known, and the complete
case name, case number, and forum of any legal action the
whistleblower has taken. Use additional sheets, if necessary.
Question 7a: Choose from the following the option that the
whistleblower believes best describes the type of financial product
or investment at issue, if applicable:
Commodity futures;
Options on commodity futures;
Commodity options;
Foreign currency transactions;
Swaps; or
Other (specify).
Question 7b: Provide the name of the financial product or
investment, if applicable.
Question 8: State in detail all the facts pertinent to the
alleged violation. Explain why the whistleblower believes the facts
described constitute a violation of the Commodity Exchange Act. Use
additional sheets, if necessary.
Question 9: Describe all supporting materials in the
whistleblower's possession, custody or control, and the availability
and location of additional supporting materials not in the
whistleblower's possession, custody or control. Use additional
sheets, if necessary.
Question 10: Describe how the whistleblower obtained the
information that supports the whistleblower's allegation. If any
information was obtained from an attorney or in a communication
where an attorney was present, identify such information with as
much particularity as possible. In addition, if any information was
obtained from a public source, identify the source with as much
particularity as possible. Use additional sheets, if necessary.
Question 11: The whistleblower may use this space to identify
any documents or other information in the whistleblower's submission
on this Form TCR that the whistleblower believes could reasonably be
expected to reveal the whistleblower's identity. Explain the basis
for the whistleblower's belief that the whistleblower's identity
would be revealed if the documents or information were disclosed to
a third party.
Question 12: Provide any additional information the
whistleblower thinks may be relevant.
Section E: Eligibility Requirements
Question 1: State whether the whistleblower is currently, or was
at the time the whistleblower acquired the original information that
the whistleblower is submitting to the Commodity Futures Trading
Commission, a member, officer or employee of the Department of
Justice, the Commodity Futures Trading Commission, the Comptroller
of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Office Thrift
Supervision, National Credit Union Administration, the Securities
and Exchange Commission, a registered entity, a registered futures
association, a self-regulatory organization, or any law enforcement
organization.
Question 2: State whether the whistleblower is providing the
information pursuant to a cooperation agreement with the Commodity
Futures Trading Commission or with any other agency or organization.
Question 3: State whether the whistleblower is providing this
information before the whistleblower (or anyone representing you)
received any request, inquiry or demand that relates to the subject
matter of the whistleblower's submission: (i) From the CFTC; (ii) in
connection with an investigation, inspection or examination by any
registered entity, registered futures association or self-regulatory
organization; or (iii) in connection with an investigation by the
Congress, or any other federal or state authority.
Question 4: State whether the whistleblower is currently a
subject or target of a criminal investigation, or has the
whistleblower been convicted of a criminal violation, in connection
with the information the whistleblower is submitting to the
Commodity Futures Trading Commission.
Question 5: State whether the whistleblower acquired the
information the whistleblower is providing to the Securities and
Exchange Commission from any individual described in Questions 1
through 5 of this Section.
Question 6: State whether the whistleblower is currently, or was
at the time the whistleblower acquired the original information that
the whistleblower is submitting to the Commodity Futures Trading
Commission, a member, officer, or employee of a foreign regulatory
authority or law enforcement organization.
Question 7: Use this space to provide additional details
relating to the whistleblower's responses to questions 1 through 6.
Use additional sheets, if necessary.
Section F: Whistleblower's Declaration
The whistleblower must sign this Declaration if the
whistleblower is submitting this information pursuant to the
Commodity Futures Trading Commission whistleblower program and wish
to be considered for an award. If the whistleblower is submitting
the whistleblower's information anonymously, the whistleblower must
still sign this Declaration, and the whistleblower must provide the
whistleblower's attorney with the original of this signed form.
If the whistleblower is not submitting the whistleblower's
information pursuant to the
[[Page 53218]]
Commodity Futures Trading Commission whistleblower program, the
whistleblower do not need to sign this Declaration.
Section G: Counsel Certification
If the whistleblower is submitting this information pursuant to
the Commodity Futures Trading Commission whistleblower program and
is doing so anonymously through an attorney, the whistleblower's
attorney must sign the Counsel Certification section.
If the whistleblower is represented in this matter but the
whistleblower is not submitting the whistleblower's information
pursuant to the Commodity Futures Trading Commission whistleblower
program, the whistleblower's attorney does not need to sign the
Counsel Certification Section.
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Privacy Act Statement
This notice is given under the Privacy Act of 1974. The Privacy
Act requires that the Commodity Futures Trading Commission (CFTC or
Commission) inform individuals of the following when asking for
information. The information provided will enable the Commission to
determine the whistleblower's eligibility for payment of an award
pursuant to Section 23 of the Commodity Exchange Act. This
information may be disclosed to Federal, state, local, or foreign
agencies responsible for investigating, prosecuting, enforcing, or
implementing laws, rules, or regulations implicated by the
information consistent with the confidentiality requirements set
forth in Section 23 of the Commodity Exchange Act and Part 165 of
the Commission's Regulations thereunder. Furnishing the information
is voluntary, but a decision not
[[Page 53221]]
to do so may result in the whistleblower not being eligible for
award consideration.
Questions concerning this form may be directed to the Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
General
This form should be used by persons making a claim for
a whistleblower award in connection with information provided to the
CFTC or to another agency in a related action. In order to be deemed
eligible for an award, the whistleblower must meet all the
requirements set forth in Section 23 of the Commodities Exchange Act
and the rules thereunder.
The whistleblower must sign the Form WB-APP as the
claimant. If the whistleblower provided the whistleblower's
information to the CFTC anonymously, the whistleblower must now
disclose the whistleblower's identity on this form and the
whistleblower's identity must be verified in a form and manner that
is acceptable to the CFTC prior to the payment of any award.
[cir] If the whistleblower is filing the whistleblower's claim
in connection with information that the whistleblower provided to
the CFTC, then the whistleblower's Form WB-APP, and any attachments
thereto, must be received by the CFTC within ninety (90) days of the
date of the Notice of Covered Action or the date of a final judgment
in a related action to which the claim relates.
[cir] If the whistleblower is filing the whistleblower's claim
in connection with information the whistleblower provided to another
agency in a related action, then the whistleblower's Form WB-APP,
and any attachments there to, must be received by the Commodity
Futures Trading Commission as follows:
If a final order imposing monetary sanctions has been
entered in a related action at the time the whistleblower submits
the whistleblower's claim for an award in connection with a
Commission action, the whistleblower must submit the whistleblower's
claim for an award in that related action on the same Form WB-APP
that the whistleblower uses for the Commission action.
If a final order imposing monetary sanctions in a
related action has not been entered at the time the whistleblower
submits the whistleblower's claim for an award in connection with a
Commission action, the whistleblower must submit the whistleblower's
claim on Form WB-APP within ninety (90) days of the issuance of a
final order imposing sanctions in the related action.
The whistleblower must submit the whistleblower's Form
WB-APP to us in one of the following two ways:
[cir] By mailing or delivering the signed form to the Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581; or
[cir] By faxing the signed form to (202) XXX-XXXX.
Instructions for Completing Form WB-APP
Section A: Applicant's Information
Questions 1-3: Provide the following information about yourself:
First and last name, and middle initial, and social
security number;
Complete address, including city, state and zip code;
Telephone number and, if available, an alternate number
where the whistleblower can be reached; and
E-mail address.
Section B: Attorney's Information
If the whistleblower is represented by an attorney in this
matter, provide the information requested. If the whistleblower is
not represented by an attorney in this matter, leave this Section
blank.
Questions 1-4: Provide the following information about the
attorney representing the whistleblower in this matter:
Attorney's name;
Firm name;
Complete address, including city, state and zip code;
Telephone number and fax number; and
E-mail address.
Section C: Tip/Complaint Details
Question 1: Indicate the manner in which the whistleblower's
original information was submitted to the CFTC.
Question 2a: Include the TCR (Tip, Complaint or Referral) number
to which this claim relates.
Question 2b: Provide the date on which the whistleblower
submitted the whistleblower's information to the CFTC.
Question 2c: Provide the name of the individual(s) or entity(s)
to which the whistleblower's tip, complaint, or referral related.
Section D: Notice of Covered Action
The process for making a claim for a whistleblower award begins
with the publication of a ``Notice of a Covered Action'' on the
Commission's Web site. This Notice is published whenever a judicial
or administrative action brought by the Commission results in the
imposition of monetary sanctions exceeding $1,000,000. The Notice is
published on the Commission's Web site subsequent to the entry of a
final judgment or order in the action that by itself, or
collectively with other judgments or orders previously entered in
the action, exceeds the $1,000,000 threshold required for a
whistleblower to be potentially eligible for an award. The
Commission will not contact whistleblower claimants directly as to
Notices of Covered Actions; prospective claimants should monitor the
Commission Web site for such Notices.
Question 1: Provide the date of the Notice of Covered Action to
which this claim relates.
Question 2: Provide the notice number of the Notice of Covered
Action.
Question 3a: Provide the case name referenced in Notice of
Covered Action.
Question 3b: Provide the case number referenced in Notice of
Covered Action.
Section E: Claims Pertaining to Related Actions
Question 1: Provide the name of the agency or organization to
which the whistleblower provided the whistleblower's information.
Question 2: Provide the name and contact information for the
whistleblower's point of contact at the agency or organization, if
known.
Question 3a: Provide the date on which that the whistleblower
provided the whistleblower's information to the agency or
organization referenced in question E1.
Question 3b: Provide the date on which the agency or
organization referenced in question E1 filed the related action that
was based upon the information the whistleblower provided.
Question 4a: Provide the case name of the related action.
Question 4b: Provide the case number of the related action.
Section F: Eligibility Requirements and Other Information
Question 1: State whether the whistleblower is currently, or was
at the time the whistleblower acquired the original information that
the whistleblower submitted to the CFTC, a member, officer or
employee of the Department of Justice, the Commodity Futures Trading
Commission, the Comptroller of the Currency, the Board of Governors
of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit
Union Administration, the Securities and Exchange Commission, a
registered entity, a registered futures association, a self-
regulatory organization, any law enforcement organization, or a
foreign regulatory authority or law enforcement organization.
Question 2: State whether the whistleblower provided the
information submitted to the CFTC pursuant to a cooperation
agreement with the CFTC or with any other agency or organization.
Question 3: State whether the whistleblower acquired the
information the whistleblower provided to the CFTC from any
individual described in Question 1 through 2 of this Section.
Question 5: If the whistleblower answered ``yes'' to questions 1
though 3 of this Section, please provide details.
Question 5a: State whether the whistleblower provided the
information submitted to the CFTC before the whistleblower (or
anyone representing the whistleblower) received any request, inquiry
or demand that relates to the subject matter of the whistleblower's
submission: (i) From the CFTC; (ii) in connection with an
investigation, inspection or examination by any registered entity,
registered futures association or self-regulatory organization; or
(iii) in connection with an investigation by the Congress, or any
other federal or state authority.
Question 5b: If the whistleblower answered ``yes'' to questions
5a, please provide details. Use additional sheets if necessary.
Question 6a: State whether the whistleblower is the subject or
target of a criminal investigation, or has been convicted of a
criminal violation, in connection with the information upon which
the whistleblower's application for an award is based.
Question 6b: If the whistleblower answered ``yes'' to question
6a, please provide details,
[[Page 53222]]
including the name of the agency or organization that conducted the
investigation or initiated the action against you, the name and
telephone number of the whistleblower's point of contact at the
agency or organization, if available, and the investigation/case
name and number, if applicable. Use additional sheets, if necessary.
Section G: Entitlement to Award
This section is optional. Use this section to explain the basis
for the whistleblower's belief that the whistleblower is entitled to
an award in connection with the whistleblower's submission of
information to the Commission or to another agency in connection
with a related action. Specifically, address how the whistleblower
believes the whistleblower voluntarily provided the Commission with
original information that led to the successful enforcement of a
judicial or administrative action filed by the Commission, or a
related action. Refer to Sec. 165.11 of Part 165 of the
Commission's Regulations for further information concerning the
relevant award criteria. The whistleblower may use additional
sheets, if necessary.
Section 23(c)(1)(B) of the CEA requires the Commission to
consider in determining the amount of an award the following
factors: (a) The significance of the information provided by a
whistleblower to the success of the Commission action or related
action; (b) the degree of assistance provided by the whistleblower
and any legal representative of the whistleblower in the Commission
action or related action; (c) the programmatic interest of the
Commission in deterring violations of the Commodity Exchange Act
(including Regulations under the Act) by making awards to
whistleblowers who provide information that leads to the successful
enforcement of such laws; and (d) whether the award otherwise
enhances the Commission's ability to enforce the Commodity Exchange
Act, protect customers, and encourage the submission of high quality
information from whistleblowers. Address these factors in the
whistleblower's response as well.
Section H: Declaration
This section must be signed by the claimant.
Issued in Washington, DC, on August 4, 2011, by the Commission.
David A. Stawick,
Secretary of the Commission.
Appendices to Final Rules for Implementing the Whistleblower Provisions
of Section 23 of the Commodity Exchange Act--Commission Voting Summary
and Statements of Commissioners
Note: The following appendices will not appear in the Code of
Federal Regulations
Appendix 1--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Dunn, Chilton
and O'Malia voted in the affirmative; Commissioner Sommers voted in
the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the final rulemaking to establish a program for
whistleblowers as mandated by the Dodd-Frank Wall Street Reform and
Consumer Protection Act. Congress enacted these provisions to
incentivize whistleblowers to come forward with new information
about potential fraud, manipulation or other misconduct in the
financial markets. The final rule authorizes the Commodity Futures
Trading Commission (CFTC) to provide a monetary award to
whistleblowers when their original information leads to a successful
enforcement action that results in sanctions over $1 million. The
rule encourages people to assist the CFTC in identifying,
investigating and prosecuting potential violations of the Commodity
Exchange Act.
[FR Doc. 2011-20423 Filed 8-24-11; 8:45 am]
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Last Updated: August 25, 2011