In a landmark move, the U.S. Securities and Exchange Commission (SEC) has wielded its enforcement authority under Rule 21F-17 to crack down on companies hindering employees from reporting securities law violations. Recent cases involving D.E. Shaw & Co., L.P., and CBRE, Inc. have set new precedents, sending a clear message to publicly traded businesses and SEC-regulated entities.
DESCO, a global investment and technology corporation, faced a historic $10 million penalty for violating Rule 21F-17. The SEC discovered that DESCO's employment agreements contained restrictive confidentiality clauses, discouraging employees from reporting potential securities infractions. These provisions persisted for nearly a decade, affecting hundreds of departing employees. It wasn't until 2017 and 2018 that DESCO clarified its policies, finally allowing employees to communicate with government agencies regarding legal violations.
Similarly, CBRE, Inc., a national commercial real estate firm, faced a $375,000 fine for impeding whistleblowers through separation agreement provisions. While the SEC acknowledged CBRE's extensive cooperation and swift corrective actions, the company's agreements still contained language preventing employees from filing complaints. The SEC emphasized that the wording used in the agreement undermined the very purpose of Rule 21F-17.
One critical lesson for employers is the need for meticulous scrutiny of separation agreements, non-disclosure agreements, and other internal policies. Wording that obstructs employees from reporting securities law violations to the SEC should be promptly rectified. Additionally, employers must ensure that any release language does not inadvertently impede employees' rights to communicate with government authorities.
Furthermore, it's imperative for employers to be aware of state-specific requirements, particularly in light of recent #MeToo laws. These may necessitate additional language in agreements to address discrimination, harassment, or retaliation claims without overstepping the bounds set by the SEC.
The SEC's assertive stance on whistleblower protections underscores the importance of cooperation in enforcement actions. The agency's commitment to upholding Rule 21F-17 serves as a warning to all SEC-regulated businesses to take proactive measures to ensure compliance.
By doing so, companies can avoid substantial penalties and uphold the integrity of their compliance programs. The SEC's message is clear: obstructing whistleblowers will not be tolerated.
