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Regulation and Compliance > Federal Regulation > SEC

House Dems Call for SEC Crackdown on Corporate Anti-Whistleblower Practices

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Eight Democratic members of the House Committees on Financial Services and Oversight and Government Reform told Securities and Exchange Commission Chairwoman Mary Jo White Monday to “promptly” inform them about the efforts the Commission is taking — as well as challenges the agency is facing — to address corporate practices to deter whistleblowers.

In their letter, Rep. Maxine Waters, D-Calif., ranking member on the financial services committee, and Rep. Elijah Cummings, D-Md., ranking member on the oversight and government reform committee, expressed concern about reports of the use of “overly restrictive nondisclosure agreements and other employment arrangements that serve to deter whistleblowers,” which could threaten the effectiveness of the SEC’s Whistleblower Program, created under Dodd-Frank.

The success of the SEC’s whistleblower program, the lawmakers told White, “may be fleeting if corporate actions that chill the environment for whistleblowers are not promptly and adequately addressed.”

Since its launch in 2011, the lawmakers said, the SEC has received 6,000 whistleblower tips, complaints and referrals “from every state” as well as 55 countries. In just the last fiscal year, the lawmakers said, 139 enforcement judgments and orders have been issued. 

The letter cited a June Washington Post article, “Workplace Secrecy Agreements Appear to Violate Federal Whistleblower Laws,” which described the proliferation of agreements that may limit employees’ rights to report misconduct. 

“While there are legitimate reasons for companies to use confidentiality agreements to protect sensitive information, such agreements should be structured as narrowly as possible,” the lawmakers told White. “Employees should also be clearly informed that these agreements in no way restrict their right to voluntarily report securities law violations to the Commission.”

The use of confidentiality agreements, attestations and other employment arrangements that do not abide by these principles appears to be in direct contravention to SEC Rule 21F-17, which states that “nothing shall impede communications to the Commission about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement,” the lawmakers said.  

“Taken together, pre-emptive legal maneuvering to silence prospective whistleblowers and retaliation against known whistleblowers undermine the continued success of the SEC’s whistleblower program and its crucial role in protecting investors,” the lawmakers said. “We urge the Commission to send a strong message to industry, including by bringing enforcement actions if necessary, that such acts will not be tolerated.”

In addition to Waters and Cummings, the letter was signed by Reps. Gwen Moore of Wisconsin, Jackie Speier of California, Keith Ellison of Minnesota, Tammy Duckworth of Illinois, Stephen Lynch of Massachusetts and Matt Cartwright of Pennsylvania.

— Check out SEC Brought ‘Record’ 755 Enforcement Actions in 2014 on ThinkAdvisor.


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