The SEC recently announced the settlement of multiple enforcement actions for violations of its whistleblower protection rule, which prohibits “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation.”  SEC Rule 21F-17(a).  These settlements resulted in the targeted companies paying fines exceeding $3 million in the aggregate.

As we have previously reported (see here and here), the SEC has closely scrutinized provisions in common contracts, such as confidentiality, employment, and separation agreements, that could be interpreted as creating impediments to whistleblower complaints.

On September 4, 2024, the SEC announced that a New-Jersey based financial planning firm and affiliated investment advisors had agreed to settle charges that they had violated Rule 21F-17(a) by asking brokerage customers and advisory clients to sign confidentiality agreements in connection with payments intended to compensate for losses caused by alleged breaches of securities laws.  According to the order, the offending agreements impeded clients from reporting potential securities law violations by permitting communications only where the SEC first initiated an inquiry.  In addition, some of the agreements further required the clients to represent that they had not reported the underlying dispute to any securities regulator and would forever refrain from such reporting.  Without admitting or denying the SEC’s findings, the firms consented to a cease-and-desist order, a censure, and a civil penalties totaling $240,000.

Less than one week later, on September 9, 2024, the SEC announced that it had settled charges with seven public companies for using employment, separation, and other agreements that required employees to waive their right to received whistleblower awards.  The SEC has consistently maintained that such provisions impede would-be whistleblowers from reporting potential securities violations, in violation of Rule 21F-17(a) (see our posts here and here).  Each of the companies agreed to remediate the violations by revising the relevant agreements and they agreed to pay more than $3 million combined in civil penalties.

This recent flurry of enforcement actions by the SEC serves as a vivid reminder for companies to review their existing agreements and policies to ensure compliance with Rule 21F-17(a).

Posted in Rule 21F-17
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Photo of Steven J. Pearlman Steven J. Pearlman

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

Employment, Restrictive Covenant & Trade Secret, and Whistleblower…

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

Employment, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has the unusual experience of testifying in federal court in connection with investigations. 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.

Thought Leadership and Accolades. Steven was named 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 has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

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 U.S. Library of Congress Burton Award Winner for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often 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.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

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