TheCorporateCounsel.net

Last week, the SEC announced another enforcement action against a company for using separation agreements that violated whistleblower protection rules. The SEC’s Enforcement Division has been on the lookout for these provisions for years — in 2016, the SEC launched a campaign to enforce these rules and brought another enforcement action on this topic as recently as last year.

In this latest enforcement action, the SEC took issue with the company’s use of separation agreements that included a waiver of rights to monetary awards in connection with filing claims or participating in government agency investigations. The order found that those waivers impeded participation in the SEC’s whistleblower program since employees were required to forgo “important financial incentives that are intended to encourage people to communicate directly with SEC staff about possible securities law violations.”

I’m not positive that this was the first of this type of enforcement action against a privately held company, but the SEC highlighted that the respondent in this enforcement action was privately held in its announcement. The press release included this quote from a Regional Director:

“Both private and public companies must understand that they cannot take actions or use separation agreements that in any way disincentivize employees from communicating with SEC staff about potential violations of the federal securities laws,” said Jason J. Burt, Regional Director of the SEC’s Denver Office. “Any attempt to stifle or discourage this type of communication undermines our regulatory oversight and will be dealt with appropriately.”

– Meredith Ervine