In an ongoing effort to protect whistleblowers who report violations of the securities laws and regulations, the Securities and Exchange Commission (“SEC”) continues to sanction employers who interfere with the rights of its employees to obtain whistleblowers awards. SEC Rule 21F-17, which was adopted in response to the whistleblower reward provisions found in the Dodd-Frank Act, forbids a covered employer from taking “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.”
The first enforcement test case for Rule 21F-17 came against KBR Inc. (“KBR”), when a law firm litigating against KBR documented an entrenched practice at KBR that forced all of its employees with knowledge of fraud to sign non-disclosure agreements that threatened them with termination if they chose to reveal fraud to anyone outside of KBR’s legal department. After the law firm filed a complaint, the SEC commenced an enforcement action and KBR was forced to pay a $130,000 penalty and agreed to cease this practice. Most recently, on January 17, 2017, the SEC sanctioned BlackRock Inc., the world’s largest investment management firm, with a $340,000 penalty for interfering with the right of its employees to obtain whistleblower rewards under the SEC’s Dodd-Frank Act whistleblower reward program.
Since KBR and BlackRock, the SEC has fined numerous companies for violating an employee’s right to engage in protected whistleblowing activities. The largest came in September 2016 when the SEC sanctioned Anheuser-Busch In Bev with a $6 million fine for engaging in misconduct under the Foreign Corrupt Practices Act that included the unlawful attempt to impeded a whistleblower from reporting misconduct. Others include: a $1.4 million penalty against SandRidge Energy Inc. for retaliating against a whistleblower who refused to sign an illegal confidentiality agreement; a $340,000 penalty against Health Net Inc. for including it its severance agreements a prohibition that prevented employees from being able to obtain a monetary reward under SEC’s whistleblower program ; and a penalty of $265,000 against Blue Linx Holdings when the company had departing employees waive their right to recover a reward for any whistleblower complaints to be filed.
As lawyers who represent whistleblowers, we are encouraged by this heightened enforcement of whistleblower protection laws by the SEC. The SEC understands that the best way to root out and uncover fraud that harms innocent shareholders and investors is through robust whistleblower protection and financial incentives that make whistleblowing worthwhile. To learn more about our Whistleblower and Qui Tam practice group, click here. We are always available to answer your questions on a confidential basis.
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