August 17, 2016

Whistleblowers: What Should You Do Now With Your Agreements? (Let’s Call It a Trend)

Here’s news from Scott Kimpel of Hunton & Williams: As described in this press release, the SEC brought yet one more settled administrative case yesterday against a public company – Health Net – based on confidentiality & waiver provisions contained in employee severance agreements – paying a $340k penalty. Like in the BlueLinx action brought last week, the SEC determined that these provisions violated the anti-whistleblower rules it adopted under Dodd-Frank – and again, there is no indication that the company actually sought to enforce the offensive provisions. Here’s the SEC order, which contains excerpts of the impermissible contractual language.

Toni Chion, an Associate Director in the SEC’s Enforcement Division, supervised both cases – which may suggest that the cases are the product of a broader enforcement sweep…

Sunshine Act: SEC’s Quorum Rule Helps to Keep Rulemakings at a Near Standstill

I love blogging about the Sunshine Act. As I’ve blogged before, the SEC has a quorum rule that has the end result that a single Commissioner can refuse to show up & effectively veto a Commission action when the Commission has three sitting Commissioners or less. Which is the case for the foreseeable future since the Senate has failed to confirm the two folks waiting to be confirmed since last year.

Here’s an excerpt from this recent WSJ article about how the quorum rules vary at the federal agencies:

Not all short-handed federal agencies are as hobbled by the restrictions of a 40-year-old open-government law as the top U.S. overseer of derivatives. The Commodity Futures Trading Commission’s big-sister agency, the Securities and Exchange Commission, is similarly short-handed, with three of five slots occupied. But the top markets cop gets around the government in the Sunshine Act hitch largely because the law allows regulators to come up with their own definition of a quorum—the number of commissioners required to be present for their agency to act on a matter.

So the SEC came up with a special “quorum” rule, which says no decision can be made without at least three members present—if three is the number of commissioners in office. If the agency drops to only one or two commissioners, that is enough for a quorum, the rule says.
That creates its own complexities: By simply not showing up to a vote, a dissenting commissioner can block the agency from acting altogether. This effective veto power is complicating what is likely Mary Jo White’s final year as SEC chairman and could leave undone a raft of rules on issues that tend to split the commission along party lines.

The Sunshine Act was meant to prevent regulators from crafting deals in proverbial smoke-filled rooms. The law prohibits a majority of commissioners at government agencies from “deliberating” on policy matters outside of a public meeting.

At the depleted CFTC—where two of the five slots on the commission have been vacant since August 2015 due to stalling in Congress—two sitting commissioners now make a majority. And because it is a blurry line between discussing policy and deciding it, the three commissioners largely avoid interacting directly. Commissioners rely on their aides to hammer out deals, slowing down deliberations by weeks.

Broc Romanek