Brandon Lauria will speak on SEC enforcement of Rule 21F-17 at a Knowledge Group live webcast on March 9, 2017. Rule 21F-17 prohibits confidentiality agreements and other measures which restrict access to the SEC whistleblower program. The one hour webcast at noon (EST) will cover the rule protecting whistleblower communications with the SEC and recent civil enforcement actions brought by the SEC against corporations for impeding communications with whistleblowers.
Over the last year, the SEC has included violations of Rule 21F-17 in eight enforcement actions. This makes it a crucial area for whistleblower, employment and corporate attorneys to understand.
The rule states:
No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement (other than agreements dealing with information covered by § 240.21F-4(b)(4)(i) and § 240.21F-4(b)(4)(ii) of this chapter related to the legal representation of a client) with respect to such communications.
The rule went into effect in 2011. From April 2015 until January 2017, the SEC brought nine enforcement actions pursuant to the rule. These nine actions can be grouped by type:
- Confidentiality: Anheuser-Busch
- Pre-Approval of Communications: KBR, Merrill
- Information Limits on Communications: Merrill, Neustar, SandRidge
- Prohibited Investigation Participation: SandRidge
- Prohibited Filing Reward Claims: Health Net
- Reward Waivers: Health Net, BlueLinx, Blackrock, HomeStreet
- Attempted Identification/Threats: HomeStreet
Here is a brief summary of the enforcement actions by the SEC under Rule 21F-17 so far:
KBR, Inc. (April 2015)
KBR required witnesses in internal investigations to sign confidentiality statements indicating that they could be fired if they discussed the matters without approval from KBR legal dept. There were no specific instances of impeding communications. KBR settled with the SEC for $130,000.
Health Net, Inc. (August 2016)
From 2011-2013, the company specifically prohibited filing claims for an SEC whistleblower reward. After revisions, the company still created severance agreements requiring waiver of the right to a whistleblower reward until 2015. The parties settled for $340,000.
BlueLinx Holdings Inc. (August 2016)
In 2013, the company added language to severance agreements requiring waiver of possible whistleblower awards. The SEC and BlueLinx settled for $265,000.
Merrill Lynch (August 2016)
Merrill severance agreements prohibited disclosure of confidential information unless pursuant to formal legal process or written approval by Merrill. In 2014, Merrill clarified the agreement to provide that employees could initiate communications with the SEC but limited the types of information that could be provided. No specific employees were impeded.
Anheuser-Busch InBev (Sept. 2016)
A 2012 separation agreement for a whistleblower required secrecy and confidentiality of material. As a result, the Whistleblower stopped communicating with SEC. In 2015, the company amended its separation agreements to allow whistleblowing.
Neustar (Dec. 2016)
From 2011 until 2015, the company had a broad non-disparagement clause in its severance agreements. This clause impeded communications between a specific former employee and the SEC. The company and the government settled the case for $180,000.
SandRidge Energy (Dec. 2016)
SandRidge separation agreements prohibited participation in government investigations or disclosing harmful/embarrassing information. The overall case, which included civil enforcement based on anti-retaliation protections, settled for $1.4 million.
BlackRock (Jan. 2017)
From 2011 until 2016, BlackRock separation agreements required waiver of the right to recover financial incentives for reporting misconduct. The company settled with the SEC for $340,000
HomeStreet (Jan. 2017)
The company suspected a whistleblower and attempted to identify him or her. To one individual, it threatened to deny reimbursement for legal counsel. Their severance agreements also required waiver of rewards from whistleblowing.