Latest SEC Order Reiterates Want for Affirmative Whistleblower Exclusion | Seyfarth Shaw

SEC whistleblower Everybody usually agrees that folks and organizations ought to have the ability to shield their proprietary and worthwhile info. However one space the place we have seen legislative fretting is when that precept doubtlessly impedes reporting wrongdoing to the federal government. As now we have beforehand blogged, Congress and plenty of state legislatures are exploring (or, in some instances, already enacted) legislative protections for reporting suspected misconduct to the federal government. And, on the federal degree, Congress enacted the Defend Commerce Secrets and techniques Act, which supplies immunity for the disclosure of a commerce secret if made in confidence to an lawyer or authorities official for the aim of investigating a suspected violation of legislation.

The Securities and Trade Fee (“SEC”), which is understandably bullish on whistleblower protections, has additionally enacted rules to additional help whistleblowers. The SEC promulgated a rule—Trade Act Rule 21F-17(a)—that prohibits any individual from taking any motion to stop a person from contacting the SEC on to report a potential securities legislation. Particularly, the rule supplies that “[n]o individual could take any motion to impede a person from speaking instantly with the Fee employees a couple of potential securities legislation violation, together with imposing, or threatening to implement, a confidentiality settlement . . . with respect to such communications.”

Since 2015, the SEC has introduced at the very least 14 enforcement actions involving Trade Rule 21F-17(a). And a current consent order with The Brink’s Firm (“Brinks”) serves as a reminder that overbroad non-disclosure language can lead to regulatory motion. The motion arose as a result of, between April 2015 and April 2019, Brinks used an worker confidentiality settlement that prohibit staff from disclosing confidential firm info to any third occasion with out Brinks’ prior written approval. The settlement’s non-disclosure restriction didn’t carve out communications to authorities officers to report a violation of legislation which, within the SEC’s view, impeded potential whistleblowers. To resolve the investigation, Brinks agreed to:

  • Pay $400,000 as a civil financial penalty;
  • Stop and desist from any additional violations of Trade Rule 21F-17(a);
  • Insert the next language into its non-disclosure agreements:
    Protected Rights. Worker understands that nothing contained on this Settlement limits Worker’s capability to file a cost or criticism with the Securities and Trade Fee, or some other federal, state, or native governmental regulatory or legislation enforcement company (“Authorities Companies”). Worker additional understands that nothing on this Settlement limits Worker’s capability to speak with any Authorities Companies or in any other case take part in or absolutely cooperate with any investigation or continuing that could be carried out by any Authorities Company, together with offering paperwork or different info, with out discover to or approval from the Firm. Worker can present confidential info to Authorities Companies with out threat of being held liable by Brinks for liquidated damages or different monetary penalties. This Settlement additionally doesn’t restrict Worker’s proper to obtain an award for info supplied to any Authorities Companies.”; and
  • Make cheap efforts to supply present and former staff with a replica of the order and a press release Brinks permits present or former staff to: (1) present info and/or paperwork to, and/or talk with, Fee employees with out discover to or approval from the Firm; and (2) settle for a whistleblower award from the Fee pursuant to Part 21F of the Trade Act.

In a individually issued assertion, SEC Commissioner Hester Peirce expressed that, whereas she authorized of the settlement phrases, she doubted that the SEC might, by way of an enforcement motion, require an organization to exclude from its scope any disclosure to any authorities company moderately than restrict the exclusion to the SEC.


It’s not sufficient to easily decline to implement a confidentiality restriction in a disclosure to a authorities official. Quite, to adjust to Trade Act Rule 21F-17(a), any confidentiality restriction ought to embody an affirmative assertion that nothing within the settlement restricts the signatory’s capability to reveal info to or talk with authorities businesses for the aim of reporting a suspected violation of legislation.

Moreover, corporations mustn’t suppose that discretion in imposing overbroad confidentiality restrictions will stop a possible motion by the SEC. In two prior consent orders in opposition to KBR and Guggenheim Securities, the consent orders particularly famous that the SEC was unaware of any situations the place both (1) an worker was prevented from talking with an SEC official due to the settlement; or (2) the corporate took motion to implement the settlement in opposition to an worker in reference to a communication to the SEC.

Lastly, the SEC believes its prior enforcement exercise has been enough to place corporations on discover of its place and what language is required to adjust to Trade Rule 21-17(a). Within the Brinks consent order, the SEC flagged that a number of in-house attorneys obtained shopper alerts and case summaries from its exterior counsel—however Brinks didn’t revise its settlement to incorporate an appropriate carve-out for disclosures to the federal government. This seemingly signifies that, in future actions, the SEC will search greater financial penalties or extra intensive injunctive aid to implement Trade Rule 21-17(a).

Leave a Comment