The Securities and Exchange Commission announced two cases this week against companies that took steps to impede whistleblowers.
On Thursday, the SEC announced that Seattle-based financial services company HomeStreet Inc. agreed to pay a $500,000 penalty to settle charges that it conducted improper hedge accounting and later took steps to impede potential whistleblowers.
HomeStreet’s treasurer Darrell van Amen agreed to pay a $20,000 penalty to settle charges that he caused the accounting violations.
The SEC’s order finds that after HomeStreet employees reported concerns about accounting errors to management, the company concluded the adjustments to its hedge effectiveness tests were incorrect.
When the SEC contacted the company in April 2015 seeking documents related to hedge accounting, HomeStreet presumed it was in response to a whistleblower complaint and began taking actions to determine the identity of the ”whistleblower.”
”Companies that focus on finding a whistleblower rather than determining whether illegal conduct occurred are severely missing the point,” said Jina Choi, Director of the SEC’s San Francisco Regional Office, in a statement.
It was suggested to one individual considered to be a whistleblower that the terms of an indemnification agreement could allow HomeStreet to deny payment for legal costs during the SEC’s investigation. HomeStreet also required former employees to sign severance agreements waiving potential whistleblower awards or risk losing their severance payments and other post-employment benefits.
Jane Norberg, Chief of the SEC’s Office of the Whistleblower, added, “This is the second case this week against a company that took steps to impede former employees from sharing information with the SEC. Companies simply cannot disrupt the lines of communications between the SEC and potential whistleblowers.”
Earlier in the week, on Tuesday, the SEC announced that BlackRock Inc. agreed to pay a $340,000 penalty to settle charges that it improperly used separation agreements in which exiting employees were forced to waive their ability to obtain whistleblower awards.
“BlackRock took direct aim at our whistleblower program by using separation agreements that removed the financial incentives for reporting problems to the SEC,” said Anthony S. Kelly, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement. “Asset managers simply cannot place restrictions on the ability of whistleblowers to accept financial awards for providing valuable information to the SEC.”
According to the SEC’s order, more than 1,000 departing BlackRock employees signed separation agreements containing violative language stating that they “waive any right to recovery of incentives for reporting of misconduct” in order to receive their monetary separation payments from the firm.