July 5, 2022

The SEC Expects You To Read This…

John blogged a couple of weeks ago that the SEC pursued enforcement against The Brink’s Company for not including a “whistleblower” exemption in employee confidentiality agreements. We’re posting memos on this topic in our “Whistleblowers” Practice Area – and you’d better read them! Because as this Wiley memo points out, the SEC expects you to know what’s in there and act accordingly. Here’s an excerpt:

Remarkably, the SEC Order relies on Brinks’s receipt of widely distributed law firm client alerts to demonstrate that Brinks had knowledge that its Confidentiality Agreements were improperly restrictive. The SEC Order specifies that between 2015 and 2016, Brinks’s legal department received multiple legal updates from outside counsel highlighting new SEC enforcement actions for violations of Rule 21F-17(a).

As we described in our own client alert in 2016, at this time, the SEC had launched its campaign to enforce the whistleblower rules enacted in 2011. The emerging enforcement actions indicated that the SEC was targeting restrictive clauses – even those in legacy confidentiality agreements and other employment documents which pre-dated the enactment of the SEC’s 2011 whistleblower rules.

Specifically, the SEC order emphasized that company lawyers had received several “general client bulletins, legal alerts, and case summaries” about the Commission’s 21F-17 enforcement activity. In addition, the company’s regular outside employment counsel attached an alert as a “client memo” to an email they sent to the General Counsel and other lawyers involved with the employment agreements, which predicted more enforcement activity and recommended that public companies revise their employment agreements. While Rule 21F-17(a) doesn’t require intent to prove a violation, the SEC cast that as “specific advice” – and used it to add context to other findings that resulted in the settlement.

The SEC isn’t alone in expecting lawyers to read client alerts and apply the steps that the alerts recommend. A few years ago, John blogged about a federal court decision that found a “known trend” could exist for MD&A disclosure purposes because it was described in a client alert. John’s takeaway is doubly important now:

Aside from making a subscription to our sites even more of a necessity, this case shows both the resourcefulness of the plaintiffs’ bar and the potential need for companies to incorporate the “client alert” communications from their professional advisors into their disclosure controls & procedures.

Liz Dunshee