On November 4, 2019, the SEC announced that it had filed an amended complaint against online auction portal Collectors Café and CEO Mykalai Kontilai, alleging Kontilai tried to prevent investors from communicating with the SEC in violation of Rule 21F-17.  The SEC previously charged Collectors Café and Kontilai with fraudulently raising $23 million by making false statements to investors and instead misappropriating more than $6.1 million.

In the amended complaint, the SEC alleged that Collectors Café and Kontilai twice made attempts to stifle investors when those investors raised questions or concerns about the company’s conduct.  In particular, the amended complaint alleged that when an investor questioned Kontilai in 2015, Kontilai arranged for the investors’ shares to be repurchased in an agreement that required a promise that the investor would not contact government or administrative agencies for purposes of starting an investigation into the company.  The amended complaint further alleged that in 2017, two investors accused Kontilai of making material misrepresentations and omissions and brought a lawsuit to secure a return on their investment.  According to the complaint allegations, Collectors Café, Kontilai, and the two investors later entered into a settlement agreement that included an agreement not to communicate with any regulatory agencies, specifically identifying the SEC.  The SEC further alleged that once the investors spoke with the SEC, Collectors Café and Kontilai filed a lawsuit against them for violating the restriction in the settlement agreement.

Rule 21F-17, which was adopted by the SEC after the passage of the Dodd-Frank Act, prohibits company actions that impede individuals from reporting a possible securities law violation to the SEC.  Unlike the rule in Dodd-Frank prohibiting whistleblower retaliation, this protection is not restricted to the employer-employee context, although it has been enforced against employers in the past.  The rule first became effective in 2011 and the SEC brought its first action under the rule in 2015 (we reported on that action here).  There has not been much activity around this rule in the last few years; a handful of enforcement actions were brought in 2016 and one was brought in early 2017.

This action appears to represent the SEC’s first public attempt to enforce Rule 21F-17 during the Trump administration.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

Photo of Lexie Reynolds Lexie Reynolds

Lexie Reynolds is an associate in the Labor & Employment Law Department, and a member of the Employment Law Counseling & Training, Employment Litigation & Arbitration, and the Discriminatory, Harassment, and Title VII Practice Groups. Lexie’s practice covers a wide range of matters…

Lexie Reynolds is an associate in the Labor & Employment Law Department, and a member of the Employment Law Counseling & Training, Employment Litigation & Arbitration, and the Discriminatory, Harassment, and Title VII Practice Groups. Lexie’s practice covers a wide range of matters with a focus on internal corporate and government investigations. She has represented private and public companies, boards of directors and their committees, and individuals across many different industries including entertainment, financial services, and technology.

Lexie has advised and assisted clients in a variety of internal investigations as well as government enforcement actions involving the DOL, DOJ, and SEC. She has litigated matters at the administrative, state, and federal level, including a federal court trial. She has experience in matters involving Title VII discrimination, fraud, whistleblower activity, and retaliation.

Lexie is also dedicated to pro bono work and has represented individuals at the state administrative, federal court, and appellate levels including matters involving discrimination, veteran benefits, and immigration. Additionally, she has volunteered her time each year to mentor middle school students in a mock trial program aimed at developing public speaking, self-confidence, and awareness of legal rights.

While in law school, Lexie litigated criminal matters, representing juvenile and adult individuals in state court. Additionally, she interned at the Boston Juvenile Court and the Massachusetts Office of the Child Advocate.