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
SDNY: Confidentiality Agreement Impeded Investors from Whistleblowing
On November 17, 2021, the U.S. District Court for the Southern District of New York held that a company and its CEO violated Rule 21F-17 of the Exchange Act by entering into confidentiality agreements with investors that prohibited communications with the SEC, and subsequently attempting to enforce those agreements. SEC
SEC Alleges Employer’s Compliance Manual Violates Rule 21F-17
On June 23, 2021, the SEC announced that Guggenheim Securities, LLC (“Company”) agreed to settle charges that it violated Rule 21F-17 by including language in its compliance manual and training materials that allegedly prohibited employees from contacting regulators without prior Company approval. Without admitting or denying the findings in the
SDNY: SOX Whistleblower Protections Extend to Investors
On July 21, 2021, the U.S. District Court for the Southern District of New York held that the whistleblower protections established in SOX are not restricted to employee whistleblowers, but also extend to shareholders. SEC v. Collector’s Coffee Inc., No. 19-cv-4355.
Background
As we previously reported, in
NLRB Permits Confidentiality Restrictions During Internal Investigations
As reported in Proskauer’s Labor Relations Update blog, the NLRB issued an important opinion on December 17, 2019 relating to employer rules requiring confidentiality from employees during workplace investigations. Apogee Retail LLC d/b/a Unique Thrift Store, 368 NLRB No. 144 (2019).
The Board held, in a reversal of
SEC Files Suit Against Company For Allegedly Impeding Investors From Blowing the Whistle
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
SEC Continues To Scrutinize Separation Agreements
On August 16, 2016, the SEC announced that Health Net Inc. (Company) agreed to pay a $340,000 penalty to settle charges that it violated Rule 21F-17 by using severance agreements that allegedly prohibited its employees from receiving whistleblower awards from the SEC.
SEC Penalizes Company For Severance Language Purportedly Impeding Complaints
On August 10, 2016, the SEC announced that BlueLinx Holdings Inc. (Company) is settling charges that it violated Rule 21F-17 by requiring outgoing employees to waive whistleblower bounty awards in connection with severance agreements and by using an overly restrictive confidentiality clause. The Company agreed to pay a penalty of $265,000 and revise its agreements. The Order can be accessed here.
SEC Announces Enforcement Action Regarding Employee Confidentiality Agreement
On April 1, the Securities and Exchange Commission (SEC) announced its first settlement of an enforcement action under the SEC’s Rule 21F-17, which prohibits any person from taking “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 … with respect to such communications.” The SEC’s announcement comes on the heels of prior comments by Sean McKessy, Chief of the SEC’s Office of the Whistleblower, cautioning both in-house and outside counsel who draft confidentiality agreements and company policies that the SEC will actively pursue remedies against companies and attorneys who promulgate or draft policies that the SEC might view as chilling employees’ abilities to communicate with the SEC about potential securities-law violations.
Watchdogs Petition SEC to Strengthen Prohibitions Against Impeding Complaints to SEC
On July 18, 2014, a coalition of plaintiff-side lawyers and government watchdog groups proposed ways to strengthen the SEC whistleblower program in two petitions filed with the SEC. The groups urged the SEC to update Rule 21F-17, which prohibits any action that would “impede” an individual from communicating with the SEC about securities law violations, by expanding its rules governing the use of nondisclosure agreements and increasing the scope of protections for whistleblowers.