SEC Settles Charges against Health Insurance Provider for Disincentivizing Whistleblowers

The SEC settled charges with a health insurance provider for illegally using severance agreements to require outgoing employees to waive their ability to obtain monetary awards from the SEC whistleblower program.

The SEC Order stated that the California company violated federal securities laws by depriving departing employees who wanted to receive severance payments and other post-employment benefits of the ability to file applications for SEC whistleblower awards. Specifically, the SEC Order emphasized that the company amended their Waiver and Release of Claims in the following statement:

[N]othing in this Release precludes Employee from participating in any investigation or proceeding before any federal or state agency or governmental body. . . . [H]owever, while Employee may file a charge, provide information, or participate in any investigation or proceeding, by signing this Release, Employee, to the maximum extent permitted by law . . . waives any right to any individual monetary recovery . . . in any proceeding brought based on any communication by Employee to any federal, state or local government agency or department.

The SEC Order asserted that this amendment to its Waiver and Release of Claims "directly targeted the SEC's whistleblower program by removing the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations."

The health insurance company agreed to (i) make reasonable efforts to inform former employees who signed the severance agreements in question from August 12, 2011 to October 22, 2015, that the agreement does not prohibit former employees from seeking and obtaining a whistleblower award from the SEC under Section 21F of the Securities Exchange Act, (ii) certify to Enforcement Division staff that it has complied with this undertaking, and (iii) pay a $340,000 penalty.