KBR Fined Over SEC Whistleblower Rule 21F-17

U.S. Securities and Exchange Commission logo

KBR agreed to pay the SEC $130,000 for language in its confidentiality agreements restricting whistleblowers from reporting suspected violations under the SEC whistleblower program. It is the first enforcement action of its kind by the U.S. Securities and Exchange Commission.

Rule 21F-17, enacted under the authority granted to it by Dodd-Frank, prohibits any person from impeding an individual from communicating with SEC staff about a possible securities law violation. The rule specifically addresses the enforcement, or threats to enforce, confidentiality agreements.

The Securities and Exchange Commission has adamantly warned companies about restrictive language against whistleblowing in their employment agreements over the last year. KBR’s restrictive language emerged in a court case last year and it has been the most high profile example to date.

According to the SEC, the confidentiality agreements KBR asked its employees to sign contained a pre-notification clause. Andrew J. Ceresney, the Director of the Division of Enforcement at the SEC, said in a press release that the clauses potentially discouraged employees from coming forward. The SEC order says there were no apparent instances of an employee prohibited from reporting a securities violation. KBR did not admit or deny the charges in the settlement.

KBR is awaiting a decision by the Supreme Court in a whistleblower lawsuit under the False Claims Act in U.S. ex rel. Carter v. KBR. The issue in the oral argument was two-fold. First, it relates to whether the Wartime Statute of Limitations Act extends the time period for filing a lawsuit under the False Claims Act. The defendant also sought to have the Supreme Court rule on the meaning of “pending” in the FCA’s first to file requirement. Our thoughts about the oral argument in KBR are here.

Last year, the SEC brought the first enforcement action against a corporation for retaliating against a whistleblower.  If you have questions concerning whistleblower retaliation protections, please contact one of our SEC whistleblower attorneys by calling 1-800-590-4116 or filling out our contact form.