Monday, April 13, 2015

SEC Fines Company for Stifling Whistleblowers

Whistleblowers, and the SEC's Whistleblower program, are a large part of the Dodd-Frank Act. The SEC believes that information from a whistleblower who knows of possible securities law violations can be among the most powerful weapons in its law enforcement arsenal.

In an effort to demonstrate its commitment to whistleblowers, and potential whistleblowers, the SEC  brought its first enforcement action against a company for using improperly restrictive language in confidentiality agreements with the potential to stifle the whistleblowing process. The SEC charged Houston-based global technology and engineering firm KBR Inc. with violating whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act. 

According to the SEC, KBR required witnesses in certain internal investigations interviews to sign confidentiality statements with language warning that they could face discipline and even be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department.  The SEC claimed, that since these investigations included allegations of possible securities law violations, the SEC found that these terms violated Rule 21F-17, which prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations to the SEC. 

Although that position is not clear from the statute, or the rules pursuant to the statute, KBR agreed to pay a $130,000 penalty to settle the SEC’s charges. The company also voluntarily amended its confidentiality statement by adding language making clear that employees are free to report possible violations to the SEC and other federal agencies without KBR approval or fear of retaliation.

“By requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC.  We will vigorously enforce this provision.”

For more information, go to SEC.gov | SEC: Companies Cannot Stifle Whistleblowers in Confidentiality Agreements


--- The attorneys at Sallah Astarita & Cox, LLC include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including SEC and FINRA investigations, insider trading cases, securities arbitrations and class actions, nationwide. For more information call 212-509-6544 or send an email.

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