Investment Adviser Fined for Violating Whistleblower Protections in Employee Contracts
Commentary by Steven Lofchie
An investment adviser settled charges with the SEC for violating whistleblower protection rules by restricting employees from communicating potential securities law violations to the SEC.
In an Order, the SEC stated that the investment adviser included in its employment agreements provisions prohibiting employees from disclosing confidential information to anyone outside of the firm but failed to provide an exception for disclosing securities law violations to the SEC. The SEC found that the investment adviser required approximately 400 departing employees to sign releases affirming that they had not filed complaints with any governmental agency to receive deferred compensation. As a result, the SEC found violations of Exchange Act Rule 21F-17(a) ("Staff communications with individuals reporting possible securities law violations").
To settle the charges, the investment adviser agreed to (i) cease and desist from further regulatory violations, (ii) a censure and (iii) pay a civil money penalty of $10,000,000.
Commentary
This is the third recent enforcement action of this type; too many to be a coincidence. See Firm Fined for Separation Agreements that Discourage Whistleblowers; Tech Company Fined for Separation Agreements that Impede Whistleblowers.
Firms should review their employment and separation agreements.