Final Rule Whstlblwr Supp Stmt (clean final 5-26-2011w all edits)

SUPPORTING STATEMENT
FOR THE PAPERWORK REDUCTION ACT SUBMISSION FOR A NEW
INFORMATION COLLECTION
“IMPLEMENTING THE WHISTLEBLOWER PROVISIONS OF SECTION 21F OF
THE SECURITIES EXCHANGE ACT OF 1934”
A. JUSTIFICATION
1. NECESSITY OF INFORMATION COLLECTION
In Release No. 34-64565,1 the Securities and Exchange Commission (the
“Commission”) adopted a rule and forms to implement Section 21F of the Securities
Exchange Act of 1934 entitled “Securities Whistleblower Incentives and Protection.”2
The Rule describes the Whistleblower Program that the Commission has established
pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted
on July 21, 2010 (“Dodd-Frank”), which 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 federal securities laws that leads to the successful enforcement of a
covered judicial or administrative action, or a related action. The Rule defines certain
terms critical to the operation of the Whistleblower Program, outlines the procedures for
applying for awards and the Commission’s procedures for making decisions on claims,
and generally explains the scope of the Whistleblower Program to the public and to
potential whistleblowers.3 Although the Rule is comprehensive and will impose new
burdens, the Commission believes that the Rule will enhance investor protection and
promote efficient capital formation.
The Rule contains “collection of information” requirements within the meaning of
the Paperwork Reduction Act of 1995. The titles for the collections of information
contained in the Rule are:
●

“Form TCR” (a new collection of information); and

●

“Form WB-APP” (a new collection of information).

1

Implementation of the Whistleblower Provisions of Section 21F of the Securities
Exchange Act of 1934, Release No. 34-64545 (June 13, 2011) [76 FR 34299].
2

Pub. L. No. 111-203, § 922(a), 124 Stat 1841 (2010).

3

See Summary and Section I of Release No. 34-64565.
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2. PURPOSE AND USE OF THE INFORMATION COLLECTION
The purpose of the collections of information is to permit the Commission and its
staff to collect information from whistleblowers regarding alleged violations of the
federal securities laws and to determine claims for whistleblower awards.
3. CONSIDERATION GIVEN TO INFORMATION TECHNOLGY
Each of the collections of information discussed above will be submitted to the
Commission in paper format.4
4. DUPLICATION
We are not aware of any rules that conflict with or substantially duplicate the
proposed rules.
5. REDUCING THE BURDEN ON SMALL BUSINESSES
The Rule would not impact small entities. Small entity is defined in 5 U.S.C.
601(6) to mean “small business,” “small organization,” and “small governmental
jurisdiction” as defined in 5 U.S.C. 601(3) – (5). The definition of “small entity” does
not include individuals. The Rule applies only to an individual, or individuals acting
jointly, who provide information to the Commission relating to the violation of the
securities laws. Companies and other entities are not eligible to participate in the
program as whistleblowers. Consequently, the persons that would be subject to the
proposed rule are not “small entities.”
6. CONSEQUENCES OF LESS FREQUENT COLLECTION
The objectives of the Whistleblower Program under the Exchange Act could not
be met with less frequent collection of this information.
4

Potential whistleblowers are now able to submit information to the Commission
electronically through the Electronic Data Collection System (“TCR Database”), the
Commission’s interactive, web-based database for submission of tips, complaints and referrals.
Both the online database and proposed Form TCR are designed to elicit substantially similar
information concerning the individual submitting the information and the violation alleged. On
November 9, 2010, we separately submitted a request to the Office of Management and Budget
(“OMB”) for Paperwork Reduction Act approval of the TCR Database. On December 21, 2010,
we received OMB Control Number 3235-0672 for the TCR Database. Accordingly, for purposes
of this Supporting Statement, we are only discussing Forms TCR and WB-APP.

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7. SPECIAL CIRCUMSTANCES/INCONSISTENCIES WITH GUIDELINES
IN 5 CFR 1320.5(d)(2)
In certain Commission cases and related actions a whistleblower’s Form TCR will
need to be retained for more than three years. Rule 21F-9(c) requires a special process
when a whistleblower provides information to the Commission anonymously. In that
situation, the Form TCR must be submitted to the Commission by an attorney for the
whistleblower, the whistleblower must provide the attorney with a completed Form TCR
signed under penalty of perjury, and the attorney must certify that he or she consents to
be legally obligated to provide the whistleblower’s original signed Form TCR if the
Commission requests it. Rule 21F-10(c) requires that an anonymous whistleblower
disclose his identity on Form WB-APP, which can only be submitted after the
Commission has published a “Notice of Covered Action” signifying the entry of a final
judgment or order in a covered action. In some cases, it will be longer than three years
after the filing of the Form TCR before there is a final judgment or order that leads to the
filing of the Form WB-APP and the resolution of the whistleblower’s claim for an award.
Accordingly, if these cases involve a Form TCR filed by an anonymous whistleblower,
the attorney for the anonymous whistleblower will be required to retain the original Form
TCR, signed by his client, for more than three years.
For the circumstance described above, the retention of Form TCR for more than
three years is necessary to satisfy the requirements of Section 922 of Dodd-Frank and the
Commission’s programmatic needs to allow whistleblowers to submit information
anonymously but still be able to verify the whistleblower’s identity prior to the payment
of any award. Because this is a newly implemented Rule, the Commission does not
currently have historical data to determine the frequency with which attorneys will need
to retain the original Form TCR longer than three years. However, the Commission will
be able to collect, analyze and assess such data in the future after the Whistleblower
Program is implemented.
8. CONSULTATION OUTSIDE THE AGENCY
The Commission issued a release soliciting comment on the new “collection of
information” requirements and associated paperwork burdens. A copy of the proposed
release is attached.5 The Commission considered all comments received and revised
certain aspects of the proposed forms to incorporate comments received from the public.
For example, the proposed rule set forth a two-step process for the submission of original
information requiring the submission of two different forms, Forms TCR and WB-DEC.
5

Proposed Rules for Implementing the Whistleblower Provisions of Section 21F of the
Securities and Exchange Act of 1934, Release No. 34-63237 (“Proposing Release”).
3

In response to comments, to minimize the burden of the collection of information on
respondents we are adopting a more streamlined process that requires submitting only
one form, Form TCR, signed under penalty of perjury.6 In response to comments urging
us to include a question on our form asking whether the whistleblower reported the
matter to a company’s internal compliance program, we amended questions 4a and 4b of
proposed Form TCR, which asked the whistleblower to provide details about any prior
action taken regarding the complaint, to specifically state whether the whistleblower
reported the violation internally.7 To further enhance the quality, utility and clarity of the
information collected, in response to comments suggesting that the counsel certification
places an undue burden on counsel for anonymous whistleblowers, we have amended the
counsel certification provision to include the phrase “true, correct and complete to the
best of [counsel’s] knowledge, information and belief.” The addition of this phrase
makes clear that attorneys are not responsible for guaranteeing the accuracy of
information they submit on behalf of a whistleblower, but they must possess a good-faith
belief that the information submitted is true, correct and complete.8 Moreover, in
response to comments, we revised Form TCR to allow for joint submissions by more than
one whistleblower.9 With respect to the claims application process, we have increased
the period for claimants to file their claim for an award from sixty (60) days to ninety
(90) days to make the time constraints less burdensome.10
9. PAYMENT OR GIFT TO RESPONDENTS
Not applicable.

6

See, e.g., letters from National Coordinating Committee for Multiemployer Plans, Dec.
17, 2010; Corporation, Finance and Securities Law Section of the District of Columbia Bar, Dec.
17, 2010; Georg Merkl, Dec. 20, 2010. See also letter from Goodwin Proctor, LLP, and Dec. 29,
2010, which recommended that we require proposed Form TCR to be signed under penalty of
perjury, similar to the requirement for proposed Form WB-DEC.
7

See, e.g., Letters from Securities Industry and Financial Markets Association, Dec. 17,
2010; Investment Company Institute, Dec. 17, 2010; Securities Law Committee, The Society of
Corporate Secretaries & Governance Professionals, Dec. 17, 2010.
8

See letter from Eric Dixon, LLC., Dec. 13, 2010.

9

Letter from Wu, Grohovsky & Whipple, Dec. 16, 2010.

10

See, e.g., Letters from Voices for Corporate Responsibility, Dec. 17, 2010 (raising
concerns regarding requirement in proposed rules that a whistleblower submit an award
application within 60 days of a Notice of Covered Action); National Whistleblower Center,
March 17, 2011 (same).
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10. CONFIDENTIALITY
The information in the collections of information discussed above will not be
made publicly available, except as provided by the Privacy Act of 1974 (5 U.S.C. 552a)
and/or Section 21F(h)(2) of the Exchange Act. Section 21F(h)(2) provides 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
subparagraph (C) of Section 21F(h)(2)].
Section 21F(h)(2) also allows the Commission to share whistleblower identifying
information with certain domestic and foreign regulatory and law enforcement agencies.
However, the statute requires the domestic entities to maintain such information as
confidential, and requires foreign entities to maintain such information in accordance
with such assurances of confidentiality as the Commission deems appropriate.
11. SENSITIVE QUESTIONS
Not applicable.
12. BURDEN OF INFORMATION COLLECTION
The paperwork burden estimates associated with the Rule include the burdens
attributable to preparing, reviewing and reporting information to the Commission and
retaining records. The total burden is estimated to be 10,758 hours annually.
Our PRA reporting burden estimates for each of the collections of information are
based on average times and costs incurred by individuals to prepare a particular
collection of information. Form TCR is a form that is submitted by whistleblowers who
wish to provide information to the Commission and its staff regarding potential violations
of the securities laws. Form WB-APP is a form that is submitted by whistleblowers filing
a claim for a whistleblower award.
a. Form TCR
The Commission estimates that it will receive approximately 30,000 completed
Forms TCR and electronic submissions through the Electronic Data Collection System
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each year.11 Of those 30,000 submissions, the Commission estimates that it will receive
approximately 3,000 Forms TCR each year.12 Each respondent will submit only one
Form TCR and will not have a recurring obligation. In the proposing release, we
proposed that a whistleblower will have to complete two forms, proposed Form TCR and
proposed Form WB-DEC, to be eligible for an award. In the Final Rules, we have
eliminated Form WB-DEC and added the eligibility questions from that proposed form to
Form TCR.
The Commission estimates that it will take a whistleblower, on average, one hour
to complete the portion of Form TCR that does not include 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 3,000 hours.
A person who submits information through a Form TCR or the Electronic Data
Collection System and who wishes to be eligible for an award under the Program must
complete the remainder of Form TCR (the additional questions related to eligibility that
had been included in Proposed Form WB-DEC- now called “TCR Step 2”). The
Commission estimates that it will receive this additional information in roughly 50
percent of the cases in which the Commission receives a Form TCR or an electronic
submission of information.13 As noted above, the Commission estimates that it will
receive approximately 30,000 combined electronic submissions and submissions on Form
TCR each year. Thus, the Commission estimates that it will receive responses to these
additional questions in approximately 15,000 instances. We estimate that it will take a
whistleblower, on average, 0.5 hours to complete the remainder of Form TCR.14
Accordingly, we estimate that the annual PRA burden of the remainder of Form TCR is
7,500 hours. Form TCR is a mandatory form.

11

This number is a staff estimate based upon the volume of tips, complaints or referrals
received by the Commission on a monthly basis during the past year. The staff believes that the
volume of tips, complaints and referrals the Commission has received more recently, and
particularly in the months since the passage of Dodd-Frank, provides a more accurate basis for
estimating future volumes.
12

This number is a staff estimate based upon the expectation that roughly 10 percent of all
tips received by the Commission will be submitted in hard copy on Form TCR. The staff
anticipates that most whistleblowers will elect to submit their information electronically.
13

This number is a staff estimate. Because this is a new program, the staff does not have
prior relevant data on which it can base its estimate.
14

This is consistent with our estimate of the time it would take a whistleblower, on average,
to complete proposed Form WB-DEC.
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b. Form WB-APP
The Commission estimates that it will receive approximately 129 Forms WB-APP
each year. This number is a staff estimate based upon several expectations: first, that the
Commission would annually post approximately 143 of the prerequisite Notices of
Covered Action15; second, that the Commission will receive Forms WB-APP in
approximately 30 percent of cases in which it posts a Notice of Covered Action; and
third, that we will receive approximately 3 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.
The Commission also estimates that it will take a whistleblower, on average, two
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. As a result, the Commission
estimates that the annual PRA burden of Form WB-APP is 258 hours. This is a
mandatory form.
13. COST BURDEN TO RESPONDENTS/RECORDKEEPERS
Under the Proposed Rules, an anonymous whistleblower is required, 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. However, 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.16 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:

15

A whistleblower can only submit a Form WB-APP after there has been a “Notice of
Covered Action” published on the Commission’s website pursuant to Rule 21F-10.
16

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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(i)

The Commission will receive approximately 3,000 Forms TCR, 1,500 of which
contain eligibility-related information previously contained in Proposed Form
WB-DEC, and 129 Forms WB-APP annually17;

(ii)

Whistleblowers will pay hourly fees to counsel for the submission of
approximately 75 Forms TCR, and 6 Forms WB-APP annually18;

(iii)

Counsel retained by whistleblowers pursuant to an hourly fee arrangement will
charge on average $400 per hour19; and

(iv)

Counsel will bill on average: (i) 2.5 hours to complete a Form TCR20, and (ii) 10
hours to complete a Form WB-APP.21

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) $75,000 for the reporting burden of Form TCR;
and (ii) $24,000 for the reporting burden of Form WB-APP, totaling $99,000 annually.
17

The bases for these assumed amounts are explained in Section 12 above.

18

These amounts are based on the assumption, as noted above, that no more than 5 percent
of all whistleblowers will be represented by counsel pursuant to an hourly fee arrangement. The
estimate of the number of Forms TCR submitted by attorneys on behalf of whistleblowers may
turn out to be high because it is likely that most attorneys will submit tips electronically, rather
than use the hard-copy Form TCR. However, in the absence of any historical data to rely upon,
the Commission assumes that attorneys will submit hard-copy Forms TCR in the same
percentages as all whistleblowers.
19

The Commission uses this hourly rate for estimating the billing rates of securities 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 not be securities
lawyers and may charge different average hourly rates.
20

In the proposing release, we estimated that it would take an attorney, on average, 2 hours
to complete proposed Form TCR. As noted above, in the Final Rules, we have added to Form
TCR questions regarding eligibility that had been in proposed Form WB-DEC. As a result, we
estimate that it will take an attorney, on average, 2.5 hours to complete Form TCR.
21

The Commission expects that counsel will likely charge a whistleblower for additional
time required to gather from the whistleblower or other sources relevant information needed to
complete Forms TCR and WB-APP. Accordingly, the Commission estimates that on average
counsel will bill a whistleblower 2.5 hours for the completion of Form TCR and 10 hours for
completion of Form WB-APP (even though the Commission estimates that a whistleblower will
be able to complete the entire Form TCR (including the eligibility questions that had been found
in Form WB-DEC) in 1.5 hours and Form WB-APP in two hours).
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Under the proposed rules, we estimated an annual cost burden to the public of $294,000.
Therefore, as a result of changes we have made to the Forms in response to public
comments, we have reduced the annual cost burden to the public by $195,000.
14. COSTS TO FEDERAL GOVERNMENT
The collections of information referenced in this supporting statement are new.
Therefore the Commission staff does not have historical data on which to prepare a
reliable estimate of the cost to the government. After the Whistleblower Program is in
place and the staff has reviewed the associated costs, the staff will provide an estimate.
15. REASON FOR CHANGE
Not applicable. This is the first request for approval of the collection of
information for this rule.
16. INFORMATION COLLECTIONS PLANNED FOR STATISTICAL
PURPOSES
Not applicable.
17. DISPLAY OF OMB APPROVAL DATE
Not applicable.
18. EXCEPTIONS TO CERTIFICATION
Not applicable.
B. INFORMATION COLLECTION EMPLOYING STATISTICAL METHODS
Not applicable. This collection does not involve statistical methods.

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