United States: SEC Probes Corporate Interactions with Whistleblowers

According to a February 25, 2015 Wall Street Journal report, in recent weeks the SEC has sent requests to a number of companies seeking years of nondisclosure agreements, employment contracts and other documents as part of an agency probe into the potential silencing of corporate whistleblowers.1 The reported probe comes as SEC officials have expressed concerns about "pre-taliation"—the alleged use of express provisions in employment agreements, codes of conduct and severance agreements designed to deter employees from voluntarily communicating with the SEC. Sean McKessy, Chief of the SEC's Whistleblower Office, has repeatedly warned that the agency's Enforcement Division is looking not only at companies that use such provisions, but also at the attorneys responsible for drafting them.2

The reported SEC inquiry also comes several months after a coalition of whistleblower advocacy groups and plaintiffs firms submitted a petition seeking SEC rulemaking to curb the use of tactics allegedly designed to undermine the SEC's whistleblower bounty program.3 The coalition filed a second petition in July 2014 urging the SEC to launch a series of field hearings on whistleblower retaliation and to create an Advisory Committee on Whistleblower Reporting and Protection. The coalition cited several types of contractual provisions that can create inappropriate barriers between whistleblowers and the SEC, including:

  • Confidentiality agreements that prohibit employees from producing or disclosing the terms of such agreements to any individual or entity, without a carve out for law enforcement and regulatory authorities;
  • Provisions that permit an employee to make a complaint or claim to any federal, state or other government agency, but by doing so waive his or her right to receive compensation or relief arising from such a complaint or claim;
  • Provisions that require employees to notify their employer of any communications with the SEC or other governmental agencies; and
  • Provisions that require employees to represent that they have not made a prior claim or complaint about the employer to the SEC, or shared confidential company information with any third party, including the SEC or other government agencies.

SEC Whistleblower Rule 21F-17(a)

The Dodd-Frank Act mandates that the rights and remedies available to whistleblowers and reporting employees may not be waived by "any agreement, policy form, or condition of employment."4 That statutory directive is reinforced by SEC Rule 21F-17(a), which instructs that "[n]o 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 . . . with respect to such communications."5

Information Sought in the SEC's Probe

According to the Wall Street Journal, the SEC's request seeks "every nondisclosure agreement, confidentiality agreement, severance agreement and settlement agreement [the companies] entered into with employees since Dodd-Frank went into effect, as well as documents related to corporate training on confidentiality." The Journal reports that the SEC's request also asked for "all documents that refer or relate to whistleblowing" and a list of terminated employees.

Mitigating Risks in Employment Agreements

All companies should review their employment agreements, codes of conduct, internal reporting policies and separation agreements to confirm that they do not expressly or impliedly interfere with the employees' right to report to the SEC under Dodd-Frank. In particular, express provisions that prohibit employees from voluntarily communicating with regulators without prior internal reporting pose a risk that the SEC will take the position that such provisions violate SEC Rule 21F-17(a).

While less obvious, even plain vanilla annual compliance certifications and non-disparagement, confidentiality and non-disclosure provisions can put companies at risk of SEC scrutiny. For example, many standard confidentiality provisions provide that no proprietary or confidential information of the company may be shared with any third party, except if the employee is compelled to do so, and even then may be shared only after notification to the employer. If not carefully drafted to carve out interactions with regulators, these provisions could be read as interfering with an employee's ability to communicate with the SEC.

Mitigating Whistleblower Risks Generally

In light of the SEC's focus on whistleblower retaliation, companies should consider implementing the following risk mitigation strategies:

  • Processes to review internal reports of compliance concerns
  • Written procedures for safeguarding the identity of reporting employees
  • Periodic mandatory training for managers on confidentiality and anti-retaliation
  • Regular communications across the organization about internal reporting mechanisms
  • Internal processes to resolve retaliation complaints

For a more detailed discussion about mitigating the retaliation risks associated with whistleblowers, see Don't Tread on Whistleblowers: Mitigating and Managing Retaliation Risks — Part II6 available here.

WilmerHale's Dodd-Frank Whistleblower Working Group focuses on SEC and CFTC enforcement investigations, corporate compliance and employment issues arising from the SEC and CFTC's whistleblower rules. In addition to more than 20 lawyers spanning WilmerHale's Securities, Litigation and Transactional Departments, the working group includes Mark Cahn, former General Counsel for the SEC, and Matthew Martens, former Chief Litigation Counsel for the Division of Enforcement at the SEC. Cahn and Martens both played a significant role in the development of the SEC's Whistleblower Program.


1 See Rachel Louise Ensign, SEC Probes Companies' Treatment of Whistleblowers, WALL STREET JOURNAL, Feb. 25, 2015.

2 See Ben DiPietro, SEC Warns To Take Whistleblowers Seriously, WALL STREET JOURNAL, Sept. 17, 2014 (discussing remarks by SEC Whistleblower Office Chief Sean McKessy who warned, "If you are an in-house lawyer drafting language saying you can't come to the SEC, it's not just the company that is in peril, you are too.").

3 Launched in 2011, the program offers individuals who report potential securities violations to the SEC a reward of between 10 and 30 percent of any monetary recovery exceeding $1 million.

4 Dodd-Frank Wall Street Reform & Consumer Protection Act, § 922(c)(2).

5 17 C.F.R. § 240.21F-17(a).

6 SEC. REG. & LAW REP., 46 SRLR 167 (Jan. 27, 2014).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Cleary Gottlieb Steen & Hamilton LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cleary Gottlieb Steen & Hamilton LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions